The Economy Hub: Fonterra in a race it can't win

Fonterra's increased dividend payment isn't enough for most farmers to pay their interest bill, says University of Waikato Professor of agribusiness Jacqueline Rowarth.

Speaking on the The Economy Hub video show Rowarth said Fonterra's payout was still below the cost of production and farmers would not be happy despite what looked like a strong result on paper.

Fonterra yesterday delivered a half year profit of $409 million and doubled its interim dividend to 20c per share, which it will pay earlier than usual to help struggling farmers.

But most farmers would not be happy with the result, Rowarth said. Farmers felt Fonterra was behaving more like a corporate than a cooperative and the costs of the administration were still too high.

"It is a big corporate salary bill," she said.

Fonterra was out there in a geo-political race it could not win, she said.

"We haven't sufficient farmers and cows."

It had spend huge amounts of money expanding around the world when it needed to be focusing on core business.

"Let's focus on what New Zealand farmers do best, its the free range, pasture fed, high animal welfare...high environmental compliance. When you think about that and the marketing strategy into premium markets, we simply haven't been doing that. Powder is not premium."

Rowarth said she felt Fonterra needed better communication and an understanding of what was going on out on the farms.

It needed to do a better job of communicating what farmers have been doing to the rest of New Zealand.

"They've invested in trying to be responsive to market signals and doing what's best for the country, the economy and the environment and Fonterra has been a bit behind in communicating that."