{"id":373856,"date":"2026-04-11T02:00:08","date_gmt":"2026-04-11T02:00:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/373856\/"},"modified":"2026-04-11T02:00:08","modified_gmt":"2026-04-11T02:00:08","slug":"fonterras-5-4b-farmer-payout-tipped-to-add-1-to-new-zealand-gdp","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/373856\/","title":{"rendered":"Fonterra\u2019s $5.4b farmer payout tipped to add 1% to New Zealand GDP"},"content":{"rendered":"
This week, ANZ said its NZ dollar Commodity Price Index for March rose 6.4%, month-on-month to a record high.<\/p>\n
\u201cIt\u2019s definitely something that\u2019s providing a rare tailwind at the moment, particularly as the juice from lower interest rates has effectively been running out,\u201d ASB\u2019s chief economist Nick Tuffley told the Weekend Herald.<\/p>\n
\u201cIn general, when you step back, our export performance \u2013 particularly in those key primary sector exports \u2013 has been very resilient when you\u2019ve been facing a world where the global recovery has been knocked about by US tariffs coming into place last year and now, of course, the latest round of uncertainty,\u201d Tuffley said.<\/p>\n
\u201cWhen it comes to dairy, prices are still holding up at a pretty decent level, which will also help offset some of those cost headwinds that have been coming up.<\/p>\n
\u201cIt still means that dairy farming for the vast majority of people is returning fairly solidly over the season, on top of a pretty decent season last year,\u201d he said. <\/p>\n
ASB chief economist Nick Tuffley. Photo \/ NZME<\/p>\n
ASB\u2019s analysis of the $3.2b capital repayment alone suggests about half of that will go into farmer savings or debt repayment to shore up their balance sheets. <\/p>\n
As for the other half, Tuffley said it will make a difference for the economy in the long run. <\/p>\n
\u201cAs it\u2019s spent and, when you allow for the multiplier effects through the economy, it\u2019s potentially going to add something like 1% of GDP to activity over time. <\/p>\n
\u201cThat\u2019s pretty substantial in terms of the added windfall.\u201d<\/p>\n
But Tuffley said the benefits of the cash injection will not play out immediately.<\/p>\n
Farmers will be weighing up their options as to whether to pay off debt, spend more on farm improvements, or diversify.<\/p>\n
\u201cSome people will have an eye on the transition away from farming to a quieter life.\u201d<\/p>\n
Fonterra paid a record $10.16 per kg of milk solids last year, and the current season, which ends on May 31, is also shaping up to be close to $10\/kg.<\/p>\n
Tuffley said there had been a shift in farmers\u2019 investment behaviour in these improved times.<\/p>\n
In the past, farmers have tended to rush out when prices are high to expand their operations through new conversions or buying a neighbour\u2019s farm, he said.<\/p>\n
\u201cYou often have this rush to gear up a little bit, but now I think it\u2019s a lot more nuanced.<\/p>\n
\u201cThere\u2019s more focus on moving beyond just continuing to expand herd sizes, as an example.<\/p>\n
\u201cSo whilst you might get a bit of consolidation, farmers seem to be less prone to this rush to secure more land, or to secure more livestock.\u201d<\/p>\n
Shifting environmental considerations have also led to farmers taking a more conservative approach, he said.<\/p>\n
\u201cOn the banking side, there\u2019s a lot more focus on resilience \u2013 ensuring that there\u2019s some principal repayment occurring and that they are well positioned to ride out the peaks and the troughs of the cycle.\u201d<\/p>\n
Fonterra\u2019s repayment will likely raise some succession issues for some, as the average age of the typical dairy farmer has increased.<\/p>\n
Tuffley said the repayment, coming as it does with strong milk prices, could see some farmers retiring or moving on.<\/p>\n
But it hasn\u2019t all been one-way traffic for farmers, as costs exploded higher over the Covid period and generally remained high.<\/p>\n
The industry worldwide has seen a structural lift in the cost of production, Tuffley said.<\/p>\n
\u201cNaturally, from a break-even global production point of view, that is likely to support overall dairy prices being higher than what we would generally have experienced before,\u201d Tuffley said.<\/p>\n
\u201cSo, we do need a higher price, on average, given that there will be that sustained lift in costs.\u201d<\/p>\n
In the big picture, dairy faces a situation where the world\u2019s population is still growing, and the trend of increased demand for protein \u2013 particularly from Asia \u2013 is still a factor.<\/p>\n
\u201cBut markets will shift,\u201d Tuffley said, pointing to the reduced demand for infant formula in China in line with its declining birth rate.<\/p>\n
\u201cWhat we\u2019ve generally seen through different waves of economic development, particularly through Asia, is that as people\u2019s incomes increase, their eating patterns change,\u201d he said.<\/p>\n
\u201cThey\u2019re able to afford a more protein-rich diet, which includes more dairy, and more red meat, and we\u2019ve generally done well out of that.\u201d<\/p>\n
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.<\/p>\n