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Fonterra's forecast payout to dairy farmers has hit a new high with New Zealand's drought bolstering global commodity prices.
Fonterra has lifted the forecast for this season to $7.30 a kilo of milksolids, up from the previous forecast of $6.90 and last year's $4.46 payout.
Chairman Henry van der Heyden said the increased payout resulted from commodity prices holding up, largely because the drought had reduced production out of New Zealand.
"As production has dropped in New Zealand, supply gaps have opened up and prices have risen," he said.
"It's ironic that the dry conditions which are hitting many farmers so hard have driven up prices."
The drought had cost farmers lost production of 80 million kilos of milk solids in the previous three months. Production for the season was expected to be down nearly 3 per cent on last year.
It was likely there was still some upside in the forecast, although instability in the global financial markets could see Fonterra retain a payout above $7.30.
Westpac economist Dominick Stephens said the bank was picking $7.40 as the final payout to farmers.
Estimates for the impact of drought ranged from $500 million to $1 billion, although the net effect to New Zealand paled by comparison with the windfall gain from generally high prices during the year, Stephens said.
"The higher dairy payout this year compared to last year is contributing $3.8 billion to the New Zealand economy or 2.3 per cent of GDP in cash, which is an incredible boost for any economy."
The tax take was being lifted by the dairy boom.
"I think the boost to the tax take is a big part of why the Government has decided it can afford tax cuts."
