10 Aug 2015

Farmers expected to take Fonterra loan offer

2:05 pm on 10 August 2015

Dairy farmers are expected to widely take up Fonterra's offer of a 50 cent per kilogramme of milk solids shared-up loan.

 Fonterra plant in Takanini, South Auckland.

Fonterra plant in Takanini, South Auckland. Photo: RNZ / Diego Opatowski

The dairy co-operative announced the new initiative on Friday, when it issued its dramatically reduced milk forecast payout of $3.85 per kilo of milk solids - down from $5.25.

Fonterra says the additional 50 cents is effectively an interest-free loan, to be repaid when farmgate milk prices are higher (at $6).

A farm accountant, Lloyd McCall, from AgriFocus in Gore, said very few farmers would now be making any cash surplus this season, so there would be a build up of debt.

He expects that additional money will be snapped up.

"They've obviously got to finance their cash flows somewhere, so if they use the Fonterra finance it's going to be cheaper for them.

"There are farmers that will be under financial pressure and there will be farmers who the banks are really good to support... and they'll support them to a limit and once they get to the limit the support may wane a little bit, at which time that Fonterra 50 cents may just help those farmers get over the line, get through to the next phase when prices recover, it's quite a novel thing though, isn't it?"

A South Canterbury dairy leader Ryan O'Sullivan said his biggest relief was Fonterra did not touch the 2014/15 season's forecast payout.

"So they've left that at $4.40 and that was quite important I feel. If we'd gotten you know a quarter of a percent cut there, it could have certainly made the cash flow even heard this spring.

"But the fantastic news for Fonterra Shareholders was the 50 cent per kilogramme milk solids of shares held interest free loan to help out our working capital position, so for a 100,000 kilo milk solids shared up farmer that's $50,000 of interest free money that's available to go straight onto his or her overdraft, so a great bit of assistance."