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New Zealand dairy farmers facing cut in milk payments

WELLINGTON, New Zealand (AP)--New Zealand's Fonterra Cooperative Group, the world's biggest dairy exporter, on May 27 forecast a 12.5 percent cut in its milk payment to dairy farmers, a move that will strip hundreds of millions of dollars from the nation's recession-mired economy.

The company said its initial forecast for the 2010 production season payment is 4.55 New Zealand dollars ($2.82) for each kilogram of milk solids, down from this season's payment of NZ$5.20 ($3.23) per kilogram.

"A payout at this level would take hundreds of millions of dollars out of the economy," Fonterra chairman Henry van der Heyden warned. It would be "bad news for the whole country," he said.

The forecast for the 2010 season was lower than expected because of the recent strengthening of the New Zealand dollar against the U.S. dollar, which reduces dairy export earnings, van der Heyden said.

The U.S. government restarting export subsidies for its farmers, just as there had been tentative signs of recovery in the global dairy market, was another blow for New Zealand's unsubsidized dairy farmers, he said.

U.S. Agriculture Secretary Tom Vilsack on May 23 said the American move followed the European Union's reintroduction of export subsidies in January. He said the subsidies applied to 102,000 tons of mainly milk powder, butter and cheese.

New Zealand Trade Minister Tim Groser and his Australian counterpart Simon Crean plan to raise the issue with Vilsack and U.S. Trade Representative Ron Kirk at a meeting of the Cairns Group of agricultural exporting nations in Bali, Indonesia next month.

Fonterra sells 95 percent of its production abroad and accounts for 7 percent of the New Zealand's annual gross domestic production.

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