Northland’s dairy farmers are set for a $637 million dairy payout this season, but tough economic conditions means most are likely to use it to pay off debt and carry out vital farm repair work, an industry leader says.
Dairy giant Fonterra said its annual net profit shot up 170 per cent this year to a record $1.6 billion, driven by strong margins in its cheese and protein portfolios.
Excluding a net gain from divestments of $248m, the co-op’s normalised profit after tax was $1.329b, up $738m compared with the same time last year, and ahead of market expectations of $1.2b.
This included the impact of impairments and was equivalent to 80 cents per share - the top end of Fonterra’s 65c to 80c forecast range.
The co-op also reported a return on capital for the past 12 months to July 31 of 12.4 per cent, up from 6.8 per cent in the comparable period.
“There were a number of key drivers that helped us deliver this result, including favourable margins in our Ingredients channel, in particular the cheese and protein portfolios,” chief executive Miles Hurrell said.
The co-op set its milk price for the season just finished at $8.22kg/MS, up 2c from a previously advised mid-point.
With around 77.6 million kilograms of milksolids produced in Northland for the season, that means around $637,872,000 would be paid out to dairy farmers across the region.
The president of Federated Farmers in Northland, Colin Hannah, said the payout, which was a bit better than was forecast earlier, was good news for the region’s dairy farmers, but it didn’t mean there would be a spending splurge from them.
‘’As a farmer I’m absolutely stoked that we’ve got something like this, but infrastructure costs will chew up most of it though,’’ Hannah said.
‘’Farmers will be delighted with this, but I think they will be very careful with their spending. It will put a smile on faces for sure, but they will be wise about how they use it.’’
Northland’s farmers have had it tough the past few years, he said, with much land damaged by Cyclone Gabrielle and other storms, high compliance and feed costs and farm inflation, which was higher in Northland than elsewhere. As well, the banks will be wanting some of it to pay off debt, Hannah said.
He said Northland’s crumbling roading system also hit farmers hard, making it take longer to get things to and from farms, particularly for those in the Far North hit by the closure of State Highway 1 over the Mangamuka Gorge.
‘’I don’t think there’ll be much spent (on expensive machinery and equipment), with most likely to put some into maintenance fertiliser that will get them through the next season.’’
Hannah said farm inflation - the costs of running the farm - in Northland was the worst in the country, and really impacting farmers here.
‘’For example we’re on a no-exit road, so when a truck drops something off here, that truck has to go back empty as there’s nothing to pick up so we’re paying for that return journey too. It just costs so much more to run a farm here. As well, petrol and diesel costs here are among, if not the, highest in the country, and that all adds up.
‘’Sadly the (farming retailers) won’t see much of this, with most wanting to reduce their debt levels - some are paying the bank interest rates of 9-10 per cent - so it’s not all roses out there.’’
Hannah said there was need to get a good toll road, or something, to future-proof the region’s roading network so it was not cut off during bad weather events.
He said many Northland farms were devastated by Cyclone Gabrielle and the other major storm and flooding events, with a lot of land lost and needing to be repaired, and that would take much up some farmers’ payout.