Fonterra has forecast a $5.25-per-kg payout for milk solids in the 2015/16 season, and dropped the current season price by 10 cents.

Source: 1 NEWS

The next-season forecast is less than analyst predictions of about $5.50 per kg, and will be below the break-even point for many farmers.

Last season's payments had already fallen to an eight-year low of $4.50 per kg, but that figure has now dropped even lower to $4.40.

The forecast is a dramatic drop when compared with previous years, for example, the 2013/14 season, in which the farmgate milk price was $8.65 per kg.

Labour's Finance Spokesperson Grant Robertson responded to the drop by saying New Zealand has all its eggs in the dairy basket, and needs to diversify its industries to avoid Budget deficits.

"The milk price payout was $8.40 last season. It is dropping to $4.40 this season and will only recover to $5.25 next season," Mr Robertson said

"That's a $13 billion two-year economic black hole over the next two years. The big black hole in the Government's budget was a plan to diversify the economy so New Zealand is not so reliant on commodity traders."

Fonterra Chairman John Wilson said global commodity prices had not increased as expected, as markets were oversupplied with dairy.

The high prices seen 12-18 months ago had led to farmers increasing production, which had in turn driven down the price.

"This is a tough season and we will continue to keep our farmers informed as the season draws to a close given the current volatility," Mr Wilson said.