26 Sep 2012

Lower Fonterra payout for farmers

7:12 pm on 26 September 2012

Fonterra will pay its 10,500 farmer suppliers a lower payout due to declining milk prices and a higher New Zealand dollar.

The dairy co-operative and New Zealand's largest company announced its final payout for the 2011-12 season as it released its annual results in Auckland on Wednesday.

Fonterra will pay out $6.40 per kilogram of milk solids for the year ending July - a 19% drop on the previous 12 months.

It will pay farmers a milk price of $6.08 per kilogram of milk solids - three cents more than its revised forecast unveiled at the end of the season in May.

It will pay a dividend of 32 cents a share, meaning farmers will receive $6.40 for the past season - 5c less than the lower end of the previous forecast range. Fonterra will retain 10c a share.

The dairy processor and exporter says demand was strong, but record production left the world awash with milk which affected prices.

Fonterra chairman Sir Henry van der Heyden says its fortnightly auction, the Global Dairy Trade index, reached its lowest value in nearly three years in May. This contributed to a lower farmgate milk price, though the impact was softened by high volumes of milk produced due to good growing conditions.

The forecast payout for the current season remains unchanged at $5.65 to $5.75, which includes a milk price of $5.25 per kilogram of milk solids.

Sir Henry says that is because while world dairy prices have increased 9% in the past month, the recovery was expected, and was partly offset by a consistently high New Zealand dollar.

Fonterra reported a net profit after tax of $624 million in the year to July, down 19% on the previous year. It says that was largely driven by tax credits of $202 million, which won't be repeated this season.

Exports increased 11% to 2.32 million tonnes and sales volumes were up 2%, but revenue was flat at $19.8 billion.

Fonterra chief executive Theo Spierings reiterated that milk flows were up by 11%, hitting a new record of nearly 1.5 billion kilograms of milk solids.

Mr Spierings acknowledged that farmers had worked hard to achieve that extra production and says the co-operative is happy with the overall result.

Challenging conditions

The Fonterra Shareholders' Council, representing its farmer owners, says the co-operative has done all it could in challenging conditions to deliver the payout of $6.40.

Chairperson Ian Brown says the volatile market conditions in which Fonterra was forced to work over the past 12 months were largely responsible for the farmgate milk price dropping to $6.08 per kilogram of milk solids from Fonterra's initial target of $7.21.

However, Mr Brown says he is disappointed that the co-operative again failed to deliver a healthy return.