Fonterra's payout forecast for next season - $3.85 per kg of milk solids - "is simply not good enough", the shareholder council says.
The council - which represents 12,000 farmer shareholders - provides a detailed review of Fonterra's performance in its annual report.
Chairman John Monaghan yesterday acknowledged the co-operative'sstrong financial performance over the past year. But he said the economic reality down on the farm was that a $3.85 payout would make it impossible for many farmers to keep growing their businesses.
If it was the case - as had happened in the past two seasons - that Fonterra was eventually able to deliver a substantially better payout than it was initially forecasting, then questions needed to be asked about the quality of that forecast.
Last season, payout forecasts had moved up by 19 per cent during the year. Although this was in the right direction, farmers needed more certainty about what they could expect.
Monaghan said if farmers were to make sound business decisions, greater accuracy was required.
There was a risk that farmers might make business decisions this season based on an assumption that early payout forecasts were inherently conservative. That could leave them struggling later if it did not prove to be the case.
Looking back at the past year, Monaghan said farmers were feeling heartened by the payout of $4.59 per kg of milk solids and the 16 per cent increase in the company's fair value share price.
But there was a growing expectation that Fonterra needed to go beyond incremental and organic growth and start making strategic gains. Farmers expected to see more international expansion from Fonterra in the coming year.
Monaghan said the failed takeover of National Foods had shown the size of the board's ambitions.
Farmers understood the "sound commercial" reasons the company walked away from that deal but it had captured their imaginations and whetted appetites for further expansion. The reason for forming Fonterra was to realise those goals.
The council's report notes that Fonterra was successful in growing total shareholder returns (TSR) by 17.2 per cent. TSR measures the return on each shareholder investment in the co-operative.
