Almost $700m cash injection in Northland from dairy payout

Matt Long of Federated Farmers' Northland is pleased with the final milk payout price and expects another good season. Photo / Michael Cunningham

Despite an international market impacted by Covid, Northland's economy will receive a massive shot in the arm with a $696 million injection from this season's dairy payout.

Dairy giant Fonterra has announced the final payout for the 2020/21 season of $7.54 per kilogram of milk solids, plus a dividend of 20 cents per share for a total payment of $7.74 a kg/MS.

The amount trumps the previous season's total payout of $7.19 a kg/MS.

Based on about 90 million cu metres of milk solids Northland dairy farmers supply to Fonterra each year, they will earn $696.6m from the latest payout owing to a growing global demand for dairy, coupled with constrained supply that have resulted in high milk prices.

Federated Farmers Northland acting dairy chairman Matt Long said $7.74 a kg/MS was historically a very good payout and would help farmers hard hit by the prolonged dry spell at the start of this year.

"Going forward, it looks good with a base milk price of $8.13 for the 2021/22 season and the fact that although feed is short at the moment, the amount of rain we've had should set farmers up for a good spring and summer.

"But international markets can change quickly. There's a big shortage of dairy farm workers from overseas because the borders are shut but the impact here in Northland is not as much as in other parts of the country because we tend to have a lot of family farms as opposed to big corporate ones," Long said.

He said Fonterra's strong financial results, with a net profit of $599m, showed the company's strategy was benefiting New Zealand's economy.

NorthChamber chief executive Stephen Smith said a payout of that magnitude was "hallelujah" for Northland's economy hard hit by lockdowns, especially small to medium businesses.

"Hopefully the money entering the region gets more than one cycle. A lot of farmers are paying down debts and hopefully they buy new tractors and spend money in retail in general, just so their money goes further.

"Typically, money tends to flow back into town and agriculture in general constitutes a fairly big chunk of Northland's GDP. They've kept the lights on during Covid through stalwart service," Smith said.

Fonterra chief executive Miles Hurrell said the last three years have been about resetting the business towards maximising the value of New Zealand milk and moves to a customer-led operating model and strengthening of the balance sheet.

Northland dairy farmers will earn nearly $700m from the final milk payout of $7.74 per kg/MS. Photo / John Stone

Although the higher milk price and tightening margins put pressure on earnings in the final quarter, he said this was a strong overall business performance that allowed Fonterra to deliver $11.6 billion to the New Zealand economy through total pay-outs to farmers.

He said Fonterra's resilient supply chain has allowed it to get products to market and the healthy demand for New Zealand milk has seen a record shipping year for the Co-op.

"Here – like in many of our markets – Covid-19 has changed consumer behaviour, with people choosing to cook at home. That's really benefited our consumer brands and supported upward momentum in our consumer channel performance, particularly in New Zealand and Australia."

Hurrell said progress wasn't limited to Fonterra's s financial performance and mentioned efforts to reduce the environmental impact. Fonterra has announced its 2021/22 forecast farmgate milk price range of between $7.25 and $8.75 per kg/MS, with a midpoint of $8 per kg/MS.

The strong milk price was likely to continue, Hurrell said.

"Put simply, the world wants what we've got – sustainably produced, high-quality, nutritious milk. This comes at a time when we see total milk supply in New Zealand likely to decline, and be flat at best.''