Organic farmers to weather milk price decline

Fonterra’s latest downwards revision of the milk price could hit some dairy farmers hard, according to Agro-Ecological, the New Zealand investment manager.

Organic dairy farmers are in a good position to weather the recent downturn in milk prices in New Zealand due to their limited reliance on artificial inputs, according to a recent research note by Agro-Ecological Investment Management, the New Zealand regenerative agriculture manager.

Fonterra has cut its farmgate milk price forecast for 2014-15 to NZ$4.70 per kg of milk solids, down NZ$0.60 from the previous forecast of NZ$5.30. The new forecast price represents an estimated NZ$6.1bn reduction in farm income since the boom season of 2013-14, according to Aquila Capital. It will be below the cost of production for many dairy farmers, according to Agro-Ecological.

“The collapse of the milk price has the industry feeling very cautious, with not a lot of big spending happening,” reads the note. “Those farmers who ramped up the inputs in response to last season’s record payout are not looking quite so clever this time around.”

“Organically, our much lower cost base positions us far more strongly to weather these tighter periods. Indeed we, and most other organic farmers we speak to, will still make money this year, whereas those who rely on the green urea silo for their management strategy will in many cases fail to break even,” continues the report.

Fonterra, New Zealand’s co-operative and biggest processor, is expected to announce its organic strategy before the end of the year. It has already lost some suppliers that have chosen to process independently; Fonterra could soon face a shortfall in supply as demand for organic milk increases, according to Agro-Ecological.

Grass-based free range dairy farms will also weather much of the downturn, according to other asset managers.