Richard Inder: Forecasts' lack of accuracy a worry

Impeccable timing. Fonterra's latest upgrade to this year's payout forecast from $4.30 to $4.50 a kilo of milk solids is timely, coming on the same day as Federated Farmers' dairy division gathered in Hamilton for a two-day conference.

The increase will see $250 million more pumped into the rural economy than farmers expected. This represents an average of $20,000 for the co-operative's 12,000-plus shareholders.

Federated Farmers and especially its dairy wing chairman, Kevin Wooding, have been the voice of caution over Fonterra's plan to buy Australia's National Foods, makers of Yoplait yoghurt.

The cash will no doubt make Wooding and the rest of the feds a little less antagonistic to Fonterra upping its bid - necessary if it is to trump the rival A$1.78 billion ($1.95 billion), A$6 a share, offer from Philippines brewer San Miguel.

Fonterra has proven itself adept at beating forecasts it gives early in the season with the actual payouts.

In keeping with a familiar pattern established in previous years, it sent shivers through rural New Zealand last March when it predicted the strong dollar and potential weakening of commodity prices could knock this year's payout to as low as $3.50.

Chairman Henry van der Heyden exacerbated the gloom by saying the final payout was likely to vary on that figure by 5 per cent.

But Fonterra raised its estimate in June to $3.85, then to $4.05 in October and $4.30 in December.

In all but one case, the upgrade was attributed to soaring international commodity prices.

In June, a temporary easing of the dollar also sparked optimism that its peak had passed and the threat the currency posed to farmer incomes dissipated.

The latest upgrade to $4.50 makes a mockery of the March forecast, representing an increase of almost 30 per cent.

Such variability in forecasts defeats their purpose - to help farmers plan for the coming year. It is a concern.

Sharemarket investors who have witnessed similar surprises are typically relieved, the gain muting any protest about executives' abilities at forecasting.

But in those cases, as now, it is worth posing the question: what would have happened had the reverse occurred? In Fonterra's case, this would have seen the payout tumble from $3.50 to $2.50. Van der Heyden and Fonterra chief executive Andrew Ferrier would have been out on their ears.

However, it would be unfair to suggest Fonterra has increased its forecast just to woo shareholders. Apart from anything else, the increase since March is too great to be described as Machiavellian.

Clearly, Fonterra always wanted to give farmers a pleasant surprise. And the Fonterra executive has been caught on the hop.

The turn of events in the world economy has been stunning. The commodity boom has offset the effects of the plunging US dollar, caused by the propensity of America and its Government to spend more than they earn.

At the same time, the bad weather at the start of the season has weighed on production from New Zealand giving another lift to world prices.

Fonterra has received a bonus and the question farmers must now ask is, what should it do with it?

National Foods is a sensible strategy. Farmers can only hope the co-op is more accurate in its forecasts of potential returns from the deal than it was in assessing payouts for the 2004/05 season. MAKING CONTACT

The shareholders association call for Contact Energy to seek shareholder approval when the energy company made political donations was misplaced.

Shareholders are right to be fearful about companies meddling in politics. Business can muster financial resources well beyond the reach of ordinary citizens and such donations, whatever the source, inevitably carry a nod to a quid pro quo, no matter how noble.

Contact's defence that such payments are made in the interests of promoting an effective democracy have a veneer of truth. But democracy can probably function quite well without its or its rival's contributions.

Meanwhile, Contact's claim that requiring shareholder approval for such payments would fetter director powers to make other payments is hollow. Companies in the UK, for instance, routinely declare a policy of not making political donations.

But the consequences of Contact unilaterally deciding not to stump up are worth considering, especially as its competitors would line up with their chequebooks if they detected an advantage.

This is not to condone payments, but merely to suggest the first step to resolving such conundrums is disclosure. And, on this score, Contact is exemplary as it sets out the recipients of the funds as well as the sums involved.

Shareholder energy is better directed at the likes of Telecom. New Zealand's largest listed company has a lot to gain from staying sweet with those in the Beehive but is among the least transparent in disclosing who benefits from its largesse.