By DANIEL RIORDAN
Fonterra has confirmed forecasts of dramatically lower returns to dairy farmers in the season ahead, warning they stand a 50 per cent chance of taking an even bigger hit.
It says farmers' incomes are likely to drop 25 per cent.
For the season that ended yesterday, Fonterra confirmed a
milk payout of $5.33 a kilogram of milksolids (less 3c for industry good activities).
This will pump $5.7 billion into the economy by the time the last of it is paid in December.
The figure compares with $5.25 billion the year before when the payout was $5 a kilogram.
The size of the new season's payout will almost certainly be lower after Fonterra confirmed a forecast payment of just $4 a kilogram, still the third-highest on record.
Fonterra chairman John Roadley warned suppliers that the present season's payout had as much downside as upside, based on assumptions of a recovery in commodity prices and an average exchange rate of US45c (93c).
Dairy Farmers of New Zealand chairman Charlie Pedersen said the figures reinforced how tough the outlook was.
Farmers were in good shape to weather a couple of bad years, having enjoyed a rare combination of high commodity prices and a low exchange rate two years ago, but would have to watch costs.
"It looked like we were going to have to take a scalpel to farm costs," he said.
"Now we might have to take a Machete to them."
Fonterra also released yardsticks against which shareholders can measure its performance in the absence of an open market for its shares and any directly comparable competitor.
The fair share value price, based on estimates of the company's future earning potential, was set at $3.85.
Farmers supplying Fonterra must hold one fair value share for every kilogram of milksolids they produce.
The other yardstick is the commodity milk price, an estimate of what an efficient commodity producer could pay for milk and still make an adequate return on capital. The narrower the gap, the more efficient Fonterra is.
For the season just ended, it was $5.48 a kilogram, 40c higher than the actual milk return.
For the new season, Fonterra predicts a commodity milk price of $3.52, giving a gap of 33c.
