29 Aug 2012

Fonterra payout cuts will hurt - economist

9:32 am on 29 August 2012

Fonterra's revised payout forecast is estimated to be a half billion dollar hit to the economy.

The co-operative has reduced its forecast milk price by $5.65 to $5.75 a kilo of milk solids for the current season, blaming the high New Zealand dollar.

The revised forecast comprises a drop in the farm gate milk price from $5.50 to $5.25 per kilogram of milk solids and a decline in the dividend from 45-55 cents to 40-50 cents per share.

BNZ economist Doug Steel estimates the impact on the economy would be $500 million or a 0.25% of GDP.

However, he says, that's likely to change by the time of the payout because the projection relates to milk which has not yet been produced, in a world which is relatively unstable.

There could be a recovery in international dairy prices which would allow the projected payout to be revised upwards.

"International dairy prices have been nudging up, but at the same time the kiwi dollar has been consistently strong and eroding some of those gains," he says.

"We expect further increases in international dairy prices but whether that actually translates into payout back home depends on where the kiwi currency is.

Fonterra says it will maintain current advance rate payments to farmers.