KEY POINTS:
Fonterra's annual meeting - framed by the global economic crisis, tumbling commodity prices, a reduced payout and a tragedy involving its Chinese investment - should have been enough to make the hardiest director sweat.
But although questions were asked by farmers at the meeting in Palmerston North there
was no stampede demanding answers.
Chairman Henry van der Heyden said the annual get-together, preceded by a private meeting with farmers, had been very positive.
"And that sort of helped set the tone for the meeting in the afternoon," he said.
Fonterra last week cut the forecast payout to farmers by 60c to $6 per kg of milksolids, which, based on last season's collection of 1.19 billion kgs, could cost farmers $714 million.
The $6 forecast is significantly lower than last season's record $7.90 available payout - 24c of which Fonterra held back because of uncertainty in the currency, commodity and financial market - but still higher than $4.46 the previous year.
One farmer said Fonterra was the lowest paying co-operative in New Zealand and that performance could have been better.
"I don't like it, finishing third, the board doesn't like it and the management doesn't like it," van der Heyden said.
"Believe me ... the board is putting a lot of pressure on management and this year they've got to hit the home run."
The factors that drove last season's record payout had been reversed, he said.
"The spike in dairy prices drove an increase in supply as farmers the world over rushed to produce more milk," he said.
"At the same time, demand has stalled as consumers cut back on their dairy products because of high prices and because they've less money in their wallets."
Fonterra says international milk powder prices have fallen by almost 50 per cent from their most recent peak.
Demand was unlikely to recover by mid-2009 as initially expected and the co-operative believed prices would go down further than previously thought and not move up until after the year end.
The fair value share for the current season was $5.57, down 18 per cent on last season.
"This is the first fall in our share price and again says a lot about the unprecedented conditions in world markets," van der Heyden said.
Chief executive Andrew Ferrier said the company had taken steps ahead of the credit crisis to make sure it carried extra surplus cash in the event it could not issue debt.
"Although Fonterra's banking relationships are sound, the world we are in is so unpredictable it pays to be prudent," Ferrier said. "We have a severe clampdown on non-essential spending. This includes deferrals or cancellation of capital expenditures, strict expense controls and holding headcount to current levels or less."
Fonterra continued to identify non-strategic asset divestment opportunities.
"If we own businesses that are not core to delivering on that strategy we've got to be prepared to sell them so that we can invest that money in other activities."
Terrible events in China had overshadowed the year, van der Heyden said.
Fonterra's 43 per cent-owned Chinese dairy company San Lu was one of 22 firms caught up in a scandal in which the industrial chemical melamine was added to watered-down milk to boost protein levels.
Tens of thousands of infants were made ill and at least four died.
Fonterra in September wrote down its stake in San Lu - bought for US$107 million ($196 million) in 2006 - by $139 million, leaving a book value of about $62 million.
There were lessons to be learned from San Lu, which must be applied to investments and joint ventures around the world, van der Heyden said.