Fonterra forecasts farmgate milk price to drop below NZ$4/kg

But Mr Spierings said he expected global dairy prices would pick up over time.

The European Union’s common agricultural policy incorporates a public intervention price for products including butter and skimmed milk powder at which the E.U. buys up farmers’ stock to support market prices.

“It is good to see Fonterra offering support to those farmers who will struggle, although clearly it runs into some potential conflict with its non-producing shareholders”, he said.

Fonterra did not specify which regions were affected by the cuts, but the affected operations are mainly based in New Zealand, Australia and Singapore.

Wilson said: “This imbalance and the challenge of lower prices continuing for longer than anticipated is a global issue, and one with which dairy farmers globally are increasingly grappling”.

“And the more we can narrow that gap and reduce the deficit the quicker they will recovering financially in the coming years”.

Westpac Senior Economist Michael Gordon said combined with an expected two per cent drop in milk collection, revenue will obviously be down.

Fonterra increased its guidance for earnings per share to between 40 cents and 50 cents, ahead of the market’s expectations of about 36 cents per share.

He said they were under enormous pressure and the next 12 months will be extremely tough for all.

“For the average farmer you are looking at covering a business loss of NZ$260,000-280,000 this season but for many it will be a lot more than that”, said DairyNZ chief executive Tim Mackle.

The gold price remains low, but has gained a few dollars today, reaching US$1,090/oz.In New York, the UST 10yr yield benchmark has slipped to 2.23%. This payment, interest free for two years, will be paid back when the milk price goes above NZ$6.00 per kilo of milk solids.

For the first half of the season – June to December – Fonterra Cooperative Support is estimated to total NZ$430m depending on uptake.

Yesterday, Fonterra dismissed calls for the Global Dairy Trade (GDT) auction platform, which was established by the New Zealand dairy in 2008, to be suspended after a tenth consecutive fall in prices.

The loans will be funded through one-off savings, such as improving working capital and recently cutting more than 500 jobs.

Green Party primary industries spokesperson Eugenie Sage said farmers and rural communities were wearing the cost of the Government and Fonterra’s strategy of unlimited growth in milk supply.