Higher dairy payout forecast to prolong the ‘good times’

By Grant Johnston

Grant Wilks expects to sell a lot of kids’ motorbikes next Christmas, if not before. Toys for the kids is the best litmus test of farmers’ financial wellbeing he says. After 35 years in business in Te Awamutu with Wilksbrooke Motors he should know.

A predicted 27% increase in the price of milk solids next season by dairy giant Fonterra would have seriously positive spin-offs for rural servicing towns like Te Awamutu. The payout, along with a slight increase in production, would boost the income of the average Fonterra farmer by about $140,000 from about $490,000 to nearly $630,000.

The Reserve Bank and to a lesser extent the Government are doing their darndest to dampen the domestic demand that has driven the New Zealand economy in recent years, particularly in the housing sector. The world price for dairy commodities and the predicted increased payout would accelerate the shift to export-led economic growth. But in the short term at least, the revenue boost for dairy farmers would keep the tills ringing in towns like Te Awamutu and allow the economic prosperity enjoyed in recent years to continue - against many economists’ predictions.

Mr Wilks says they stocked up on LT50s (children’s four-wheel motorbikes) and other bikes last Christmas but they did not sell as well as hoped.

“Things have been a bit quiet on the farming front in the past couple of years - coming off the high of our three best years in business from 2002 to 2005, on the back of the $5.30 per kg milk solids payout.”

Following that higher payout Wilksbrookes saw sales across its whole range of products soar - including, farm bikes and utes, new cars and ‘dirt bikes for farm kids’.

“We’ve been dealing with farmers through thick and thin and we won’t be counting our chickens before they hatch. To some extent farmers will be catching up, but if the dollar goes down at the same time the payout goes up it could be frighteningly positive.”

The sale of three new utes on Thursday morning as the news of the higher predicted payout came out was a sign to Mr Wilks that for some in the farming sector who had been undecided about spending decisions, the balance had tipped.
Mr Wilks says the higher payout will be hugely beneficial to some local farmers.

“For the second and third generation farmers, who have seen their equity double in recent years, this will be a catapult to better times.”

Te Awamutu Chamber of Commerce, president Chris Smith says the higher payout would be great news for farmers and the town in general.

“We’ve been lucky with the continued strength of the building industry and the strength of the rural sector. I certainly haven’t been hearing too many grumbles (from Chamber members).”

In his role as manager of Selectrix Te Awamutu, Mr Smith has seen an increase in recent months in sales of appliances for new and upgraded kitchens and big screen televisions as farmers confidence has risen. A good season for pasture growth has contributed to that.

“I believe a lot of next season’s surplus will go towards debt reduction for some farmers, but there will still be very positive fl own on effects,” Mr Smith says.