Fonterra defies banker's gloom

Dairy giant Fonterra is telling farmer shareholder-suppliers that its payout will not drop below $3 a kilo for milk solids, despite the high exchange rate for the dollar.

Chairman Henry van der Heyden said yesterday it was too early to predict the payout for 2005-06 "but even if the dollar stays at 70USc it won't have a two in front of it".

Van der Heyden made his promise to farmers at the southern field days at Waimumu, near Gore, as part of a tour of the South Island.

He was speaking after a report by BNZ chief economist Tony Alexander said the high exchange rate for the New Zealand dollar could drive Fonterra's payout as low as $2.50 a kilogram for the 2005-2006 season.

In its December half-year results, issued on January 28, Fonterra blamed a $650 million drop in revenue mainly on the rising exchange rate.

Alexander triggered alarm two weeks later when he predicted this could cause Fonterra's payout to drop low enough to give an "unsustainable shock" to farmers with high levels of borrowings.

His forecast of $2.50 a kilogram of milk solids for the 2005-2006 season compared to the company's forecast of $4.15 a kilogram this season and Alexander's prediction of $3 to $3.50 a kilogram next season.

Dairy Farmers of NZ mid-Canterbury chairman Neil Brown warned such a payout could end dairying in some regions.

But Fonterra executives have disputed the prediction, saying factors such as commodity prices and reducing costs have to be taken into account. Van der Heyden was keen yesterday to re-assure farmers that Fonterra was working to ensure they and their co-operative would have long-term sustainable businesses.

He said Fonterra was confident it could hold the $4.15 a kilgram forecast payout announced in December for the current season to June.

"We have also made a commitment that we will announce our prediction for next season in the first two weeks of March," he said.


Van der Heyden said he had visited the flood-ravaged areas of the Wairarapa and Manawatu late last week and had been shocked at the devastation.

Fonterra had 1600 suppliers in the flooded regions, he said.

"Normally we would be collecting two million litres of milk a day, but we're only collecting one million.

"We expect there could be 60 to 80 farms that will not come back into production this year - they've been totally devastated."

- NZPA