5.45pm
Dairy giant Fonterra today slashed its forecast payout to farmer suppliers in the year to May 2003 to $3.60 per kilogram of milk solids.
The downgrade, Fonterra's fourth in the past year, came exactly 12 months to the day it told its 13,000 farmers they could expect a payout of $4.50/kg
for the 2003 season.
The reduced payout spells trouble for the wider economy as Fonterra - the world's biggest dairy exporter and New Zealand's biggest company -- generates 20 per cent of the country's exports and accounts for about 7 per cent of gross domestic product (GDP).
It will cut farmers' earnings by almost $2 billion compared with last year's record $5.30/kg payout.
The forecast came as Fonterra revealed its total payout for the half year to November fell by more than 50 per cent to $1.4 billion as lower commodity prices and a stronger kiwi dollar weighed on returns.
This equates to a first half surplus of $2.63/kg, compared with $5.57 for the same period last year.
The seasonal nature of dairy farming means the company's first half financial performance does not necessarily indicate the likely full year outcome. A final payout won't be settled on until the end of the financial year in May.
Total operating revenue fell to $6 billion during the first half, from $7 billion a year earlier.
Milk powder prices have risen by as much as 60 per cent in recent months, but Fonterra said those price hikes had been offset by the rising New Zealand dollar.
The kiwi was one of the best-performing currencies in 2002, climbing 26 per cent against the US dollar. Since the start of this year it has gained a further 5 per cent.
Fonterra said it now had 95 per cent of this year's foreign currency earnings covered at a forecast average conversion rate of US47c after beginning the year with 48 per cent hedged at about US44c.
Farmers look set to weather lower returns for some time yet.
Fonterra said today early indications for the 2003/04 season were for a payout of between $3.70 and $3.90/kg of milk solids.
The company cautioned that changes in international conditions such as exchange rates and commodity prices could impact on that forecast and the potential for a war in Iraq was an "unquantified risk".
- NZPA
