That’s a bigger decline than for all other types of farms, where interest costs in the quarter fell between 4.6% and 5%, while total costs were largely flat.
The period covers the introduction of Fonterra’s interest-free loans of 50 cents per kilogram of milksolids, which the dairy exporter introduced to help tide its farmer shareholders through a tight season where cashflows were constrained.
Those loans are interest free until 2017.
Fonterra is to decide how long to continue that support next month. About three quarters of the co-operative’s shareholders have signed up for the loans.
The Reserve Bank estimates about 10% of dairy farms account for a third of the sector’s $37.9 billion debt and it’s tasked the five biggest lenders to the sector to stress-test their portfolios to gauge whether they could withstand a protracted downturn.
Dairy farmers’ margins improved in the quarter, with the prices they receive, or output prices rising 8.9%, outstripping a 0.2% increase in the prices they pay, or input prices, based on the producer price indexes.
Both of those increases snapped five quarters of declines but on an annual basis, dairy farmers’ output prices were down 12% while input costs fell just 2.3%.
That’s also spilled over to dairy food manufacturers, whose output prices have dropped 13% in the year to September 30 while input costs are down 10%.
Manufacturers have been benefitting from the cheaper milk price and while a weaker currency makes it easier for them to export product, it has also been increasing the cost of buying capital goods, with machinery for food, beverage and tobacco processing up 3.7% in the year through September.
