Fonterra, New Zealand's dairy co-operative, has reduced the price it expects to pay farmers for milk, in response to the declining dairy prices in the international market.
The price has been reduced to also deal with the glut in production as well as drop in demand for dairy products from China and Russia.
Fonterra expects the demand from China to increase at a slower pace due to the economic slowdown, reports Reuters. It currently sees the demand in China growing annually at 4% through 2020, which is less than the anticipated 7%.
The dairy cooperative cut its farmgate price forecast to NZ$4.70 ($4) per kilogram of milk solids for the season beginning in June.
This is an eight year low and a significant dip from 2013's record-high price of NZ$8.40. The dairy industry contributes one third to the country's economic growth and accounts for about 25% of the total exports.
In a statement, Fonterra chairman John Wilson said: "There is still considerable volatility in global dairy markets.
"Right now we are seeing a number of factors that are delaying a sustained return to higher global prices."
There are already indications that farmers are reducing the dairy production.
Dairy prices have dipped up to 50% in the international market this year. The Chinese processors, who have stockpiled, have cut orders. Further, Russia has imposed a ban on dairy imports from Europe in response to the sanctions imposed on it over the Ukraine conflict. This in turn has led to glut in supply.
Image: Fonterra's Pahiatua site. Photo: Courtesy of Fonterra Co-operative Group.
