Relief as milksolids payout pegged at $3.70

By PHILIPPA STEVENSON agriculture editor

Fonterra is looking on the bright side to maintain its forecast payout to dairy farmers.

The company's confirmation of the $3.70 a kilogram of milksolids forecast in a letter to shareholders will be welcome news to farmers gathering to hear from directors and executives at this week's series of 39 nationwide accounts meetings and at its annual meeting next Thursday.

Farmers have feared the numbers would continue to slide after Fonterra cut the predicted payout from $4.50 at the start of the year to $4, then to $3.70 in July.

The payout is well down on last year's record $5.30 and will mean around $1.7 billion less going into farmers' pockets in the year to next May.

Fonterra chief executive Craig Norgate said that after an extremely difficult 12 months the company was now seeing the first signs that the market might have turned.

"Our own milk powder and butter stocks are below last year - in fact we are short on some specifications - and we have indicated price rises for any new sales.

"The Australians are also fully sold up and [their farmers] face water shortages and higher grain prices. Accordingly, the conditions are right for the Europeans to reduce their subsidies and allow the market to rise."

Against this background Fonterra directors had decided to hold the payout "to a best estimate" of $3.70 despite present returns being below the figure, Norgate said.

"We will still need to see an uplift in the market post-Christmas to achieve it."

He reported significant progress in overcoming recent problems of missed milk collections and poor response times at the company's call centre. Late collections for last month were only marginally higher than last year.

"It's still not good enough."