Fonterra's payout forecast disappoints farmers

Dairy farming leaders expressed strong disappointment at Fonterra yesterday after it held its forecast payout for this season unchanged at $4.05/kg of milk solids.

And it said the strength of the NZ dollar threatened even that figure.

The figure is 5c/kg less than last season's final payout and would be the lowest payout since 2002-03.

The $4.05/kg forecast has been made despite an 80 per cent rise in expected returns from value-added business, such as sales of branded consumer products.

Dairy Farmers of New Zealand chairman Frank Brenmuhl said Fonterra's suppliers wanted more.

"It's really a case of how Fonterra's going to deliver that. They've got to find a way."

Waikato Federated Farmers president Peter Buckley said his dairy farmer members wanted a payout of close to $4.50/kg.

"I think if Fonterra takes some hard lines and looks at their costs and things ... they could cut quite a lot out of their expenditure."

But Fonterra warned that even the $4.05/kg forecast could be reduced if the dollar stayed at its present level of around US66c for the rest of the year.

The $4.05/kg figure is based on Fonterra's original budgeted exchange rate of US61c.

An encouraging sign yesterday came from an indication that prices for commodities, such as milk powder, could improve.

Early this week, Fonterra's chief financial officer, Guy Cowan, had talked of an expectation that commodity prices would fall.

Yesterday, Fonterra for the first time identified in advance the amount of payout expected from "value-added" activities, showing farmers what they can expect as a result of having capital in the co-op. The value-added figure was set at 45c/kg of milk solids. Last season's figure was 25c/kg.

Chairman Henry van der Heyden said the 45c/kg forecast showed "the aggressive targets we have set to lift our value-add performance".

However, farmers will be disappointed this hoped-for boost to the value-added figure has not lifted the total payout prediction.

In his earlier comments, Cowan said the $4.05/kg payout was based on currency and commodity price expectations for the season.