Fonterra hikes pay-out to farmers

Fonterra's new Waitoa plant which produces Anchor ultra heat treated milk. Photo / APN

Fonterra Cooperative Group, the world's biggest dairy exporter, has raised its forecast pay-out to farmers as global demand for milk powders remains strong, while holding its expectations for a reduced dividend.

The Auckland-based company expects to pay $8.65 per kilogram of milk solids to farmers in the 2013/14 season, up from a previous forecast of $8.30 per kgMS, it said in a statement. The dairy company held its forecast dividend of 10 cents per share.

The increase is 70 cents lower than what it would be using calculations from regulated milk price manual, carrying on Fonterra's decision to pay a lower price due to the production mismatch when prices for its whole and skim milk powder surged ahead of its higher margin products such as cheese and butter.

"The increase reflects continuing strong demand for milk powders globally," chairman John Wilson said. "The board has the discretion to pay a lower Farmgate Milk Price than that specified in the manual, if it is in the best interests of the cooperative."

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The New Zealand dollar rose to 83.11 US cents at 8.45am in Wellington from 82.85 cents immediately before the announcement.

In December Fonterra slashed its forecast dividend to 10 cents from 32 cents, while keeping the forecast farmgate pay-out unchanged as surging prices for whole and skim milk powder weren't matched by higher-value products such as casein and cheese.

A record payout, combined with what is expected to be new record highs in production, will provide a big boost to incomes in the rural sector."

Westpac senior economist, Anna Boniface

At the time, Fonterra said it was limited by its plant configuration on how much milk powder it can produce, with about 70 per cent of production capacity for milk powder and the remainder making cheese and casein.

Fonterra's Wilson said the company will provide an update on the business performance when it announces its first-half result on March 26.

The company's board also approved an increase of 25 cents per kgMS in the advance rate schedule of monthly payments from March through to June.

Units in the Fonterra Shareholders' Fund, which provides investors exposure to the company's dividend stream, rose 1.1 per cent to $6.22 yesterday, and have gained 7.2 per cent this year.