There has been a call for the Government to consider reviewing dairy industry legislation to ease the financial pressure on dairy farmers who supply Fonterra.

Photo: RNZ / Alexander Robertson

It comes from Waikato University Professor of Agribusiness Jacqueline Rowarth following the further slump in dairy prices in last week's global dairy trade auction (GDT).

Professor Rowarth said angry Fonterra suppliers now faced the prospect of a further drop in their already low milk payout, on top of a reduced dividend forecast.

That has generated talk of farmers ditching Fonterra and signing up with competing dairy companies, most with foreign investors, who do not require them to buy shares to match their milk supply.

Photo: Supplied.

Professor Rowarth suggested the Government needed to take a fresh look at the impact of dairy legislation, as well as interest rates.

"It could be looking at the Dairy Industry Restructuring Act, to prevent people coming in on the basis they could get suppliers," she said.

"It could be looking at the milk manual [which guides Fonterra's milk price setting] and seeing how that actually drives the milk price - or it confirms that it's pushing it towards powder and away from investment in added-value products,"

Professor Rowarth said the Government could also discuss with the Reserve Bank why interest rates were being kept high.

"Which of course is stifling our biggest industry, the dairy industry, when most other countries have liberated their interest rates so that there can be capital investment in infrastructure for the future."

'We're doing well'

Meanwhile, opposition parties have also been quick to point the finger at the Government for contributing to dairy farmers' woes.

New Zealand First leader Winston Peters said last week's dairy price slump can be traced to the Government's inaction, as well as poor management by Fonterra.

He said the high New Zealand dollar, now almost on a par with the Australian dollar and at record highs against the euro, is also crucifying dairy export returns.

The Labour Party and the Greens have also criticised the Government - again, for failing to diversify the economy away from an over-reliance on dairying.

Prime Minister John Key, however, does not accept that argument.

"The economy's growing at over 3 percent with a far reduced contribution from dairy, and the Reserve Bank and Treasury are not only maintaining their forecast but moderately increasing their forecast, with the expectation that the dairy payout will be low," he said.

"So, yes, of course we would be a stronger economy with stronger dairy prices, but we're a highly diversified, highly productive economy and we're doing well in New Zealand."

Mr Key said the longer term outlook for dairy products remained strong and said the most effective way the Government could support farmers was by continuing to negotiate free trade agreements.

"They're the really big issue, opening up more of those markets like Korea and Japan, and the United States and others.

"One of the reasons why TPP (Trans Pacific Partnership) is so important, it opens up new markets for us and it's one of the reasons we are going to continue to work hard, particularly in Asia where we see big demand," he said.