Fonterra payment could be in shares

Dairy farmers won't necessarily get cash under a "one-off transitional assistance" payment of 10c/kg of milk solids from Fonterra next season.

The payment, to be made under the co-op's shift to a new capital structure, was referred to in a media release when Fonterra announced a 7c lift in forecast payout for this season.

However, a spokesman said the payment did not necessarily mean a cheque would be in the post. Under the new capital structure, capital held as peak notes by farmers supplying extra milk during the peak of the season is being converted to shares.

The transitional assistance means the conversion rate of peak note capital to shares will be 10c per share less than it might otherwise have been.

The initiative recognised that some farmers' short-term cash flow could be hit by this change, the spokesman said.

He said these conversions will be taken into account in all of Fonterra's dealings with individual suppliers and netted off. That might mean a cash payment to farmers in some cases but not in others.

Meanwhile, Fonterra sharemilkers are being urged to stay alert during the transition from peak notes to a "capacity charge" system.

"There will be a minority of sharemilkers who could be adversely affected, such as new dairy conversions, or farms which are expanding to increase production," Dean Bailey, chairman of the sharemilkers section of Dairy Farmers of New Zealand said.

"These sharemilkers will receive a lower payout because their share of the total milk payout will be lessened by a capacity charge."

Farmers who produce unexpectedly large amounts of milk in the spring "flush" of grass growth are forced to pay for the peak capital notes designed to pay for extra stainless steel plant.

Last year, Fonterra won agreement to replace peak notes with a "capacity charge" involving farmers receiving a slightly lower payout for milk, rather than having to pay a big sum of capital.

Each shareholder will be able to provide a certain volume of milk over the peak without having to pay a capacity adjustment.

Any farmer supplying more than this volume will pay a capacity charge. If less, farmers will receive a payment.

The proposal is for a charge of $4.80 for each excess litre of milk, known as peak standardised litre. This means a farmer producing 100,000kg of milksolids who produces an above average amount of milk in the peak spring period would get about $5000 less in milk payout.

But there will be farm owners with a low peak curve who will receive an enhanced payment, and Bailey said some may choose not to share this premium with their sharemilker.

"Sharemilkers supplying Fonterra must not be disadvantaged by the introduction of a capacity adjustment next season," he said.

The capacity adjustment will take effect from June.