Cuts in milk payments to farmers are expected to have a severe economic impact on Gannawarra Shire in northern Victoria.The sudden collapse in milk prices could cost farmers up to $180,000, according to calculations from the dairy-rich north Victorian shire of Gannawarra.

The shire, which includes towns such as Kerang, said the economic fallout from the cut could cost up to $25 million in milk payments locally and wipe out 250 jobs in the region, with people spending less.

It estimated that  Murray Goulburn’s decision to slash the price it pays farmers for milk will threaten 110 dairy industry jobs and a further 143 in sectors including retail, transport and manufacturing.

Gannawarra Shire, which borders the Murray River, is home to about 140 dairy farms. Murray Goulburn takes milk from the overwhelming majority of them.

Fonterra – which announced a price cut in early May – is supplied by some local farmers. Dairy farmers believe that the number of local farmers supplying other processors would be less than 10.

Local mayor Lorraine Learmonth said the dairy industry was a vital part of the local economy and expressed concern that some businesses already seemed quieter after the price shock.

“Most of our small towns have been built on the prosperity of dairy farming over the years,” she said.

“Most of our communities shop in our local towns. And if the dairy farmers are all tightening their belts it will be felt across all our feed mills and our retailers, our vets, even down to our schools,” she said.

The figures showed how important the dairy industry was to rural Victoria, she said. “It’s the most important aspect of our local economy because what it does, it drives the retail sector in places like Cohuna and Leitchville. It also drives a lot of the manufacturing sector.”

Gary Wight, 43, milks 500 cows at Cohuna. Mr Wight, who supplies Murray Goulburn, said the price cut would slash his revenue by $220,000 to $250,000.

The price cuts would have a “devastating” impact on the local area, he said.

“We have to shut down spending wherever we can. I’ve put my weekend milkers off already. Anything that I don’t have to spend on, I won’t spend. I just can’t, I haven’t got it.

“It’s a double-edged sword, you sell your cows [and] then you lose your income. But you keep your cows and you’ve got to feed them, so then you’ve got to find the cost of feeding them. It’s just walking that line, where you’re trying to lose as little as you can,” he said.

“A lot of us don’t have a lot of choice. Just hopefully we can ride it out and the world price will improve…hopefully we can have a lower cost season and we’ll survive,” he said.

Mr Wight said farmers had been “begging” Murray Goulburn to tell them what milk payments would next financial year. He said he would make a loss in 2015-16.

In other developments, on Friday the Victorian Government announced a $1.5 million package to help farmers and affected communities, with a large part of the money to fund extra counselling services.

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