14 Dec 2008

Warning to farmers with high debt levels

9:57 pm on 14 December 2008

A dairy farmer representative has warned that a 20% drop in Fonterra's share price is going to put some of its farmer shareholders under serious financial pressure.

Fonterra is blaming the turmoil in world equity and financial markets and the difficult global economic outlook for its decision to set next season's fair value share price at $4.47.

That's $10 below the current share price, which was also reduced from last season.

Federated Farmers' national dairy chairman Lachlan McKenzie says it won't have an immediate impact on most of Fonterra's 11,000 shareholders.

But he says those with high debt levels could be in trouble because it reduces their equity.

Mr McKenzie says generally about 20% of farmers are relatively highly geared.

He says they will be affected by the combination of the share value going down, a decrease in the forecast milk payment and the fact there was rampant on farm inflation last year of over 10%.

Mr McKenzie says these farmers will have to look at their cash flow budget very seriously.

He says the further cut in the fair value share price will also put more pressure on Fonterra to find a way through its capital restructuring impasse.