May 27, 2009, 1:40 GMT
Wellington - The New Zealand economy, which has been in recession since early last year, suffered a 780-million-New-Zealand- dollar (483.6-million-US-dollar) hit Wednesday when farmers were told how much their milk will be worth next season.
The Fonterra Co-Operative, which is New Zealand's biggest single exporter, said it would pay its 11,000 farmer-shareholders 4.55 New Zealand dollars for every kilogram of milk solids - down from 5.20 a kilogram for the season ending Sunday.
'This is the day the recession hit home,' said Federated Farmers' spokesman Lachlan McKenzie.
Dairying is the critical driver of the New Zealand economy, with exports of milk powder, butter and cheese accounting for 25 per cent of foreign-exchange earnings.
'These numbers are bleak,' McKenzie said. 'If you live in the city and think you're immune from this, think again. It's a hell of a lot of money that isn't coming through the front door of the economy.'
Fonterra Chairman Henry van der Heyden blamed low international dairy prices and the rising value of the New Zealand dollar for the slump in milk money, which reached a record 7.90 New Zealand dollars a kilogram only two years ago.
He said moves by the European Union and United States to subsidize their dairy exports would delay the recovery of international prices, already depressed by the recession in key markets.
Van der Heyden said he recognized that many dairy farmers faced a very tough year in the new season, starting Monday.
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