Fonterra revised payo, ‘tough but manageable for farm businesses’
Fonterra revised payout, ‘tough but manageable for farm businesses’
Related Article from the New Zealand Herald
Economy takes $1bn dairy hit
The payout to dairy farmers has fallen dramatically.
Wednesday Jan 28, 2009
New Zealand's economy has been dealt a blow, with confirmation our largest exporter and biggest corporate, the dairy giant Fonterra will again cut its farmer payout, costing the country a billion dollars.
The co-operative today announced that the forecast dairy payout for the 2008-2009 year has been cut to $5.10 per kg - a reduction of 90 cents on the previous forecast of $6 per kg of milksolids.
That reduction will slice more than a billion dollars off many dairy incomes and therefore out of the New Zealand economy.
In December Fonterra chairman Henry van der Heyden warned that a continuing fall in international commodity prices, fluctuations in the New Zealand dollar, and the worsening effects of the global financial meltdown meant a cut was increasingly likely.
Economists were forecasting a figure today of between $5 and $5.50 per kg.
Based on last season's collection of 1.19 billion kg of milksolids a 90c cut means a loss to the economy of more than $1bn.
Fonterra's available payout last season was a record $7.90 per kg. Originally Fonterra was expecting to payout $7 per kilo this season. A fall to $5.10 means an expected $2.28 billion injection into New Zealand's economy will not happen.
The Fonterra Shareholders' Council, which represents the interests of the farmers to the co-operatives board, issued a news release saying it was "disappointed by the magnitude of the drop" in the forecast payout.
Council chairman Blue Read said although the Fonterra had signalled that global financial and market conditions were putting pressure on payout, the 90 cent drop announced today would still have surprised many Fonterra farmers.
"After a record payout last year, we went into the season with a payout forecast of $7.00 per kilogram of milksolids. We are now confronted by a reduction of more than 25 per cent in our farm revenues for the season.
"Dairy farmers are used to fluctuating forecast adjustments and the uncertainty this creates but in this environment we would like to see more timely updates.
"These are challenging times and like many New Zealanders, Fonterra farmers are feeling the pinch," said Read.
Asked what proportion of Fonterra's farmers would be put under financial stress by the fall in payout, chief executive Andrew Ferrier said he couldn't give a specific number, "but Kiwi dairy farmers are incredibly resilient and they know how to tighten things up when prices go down, so obviously the vast majority of farmers will be able to ride this out.."
Chairman van der Heyden said cashflows would be stressed by the reduction.
"Look this $5.10 is going to put a good number of farmers' cashflows under significant pressure. Make no bones about that and I understand that."
"But at the same time, Andrew's [Ferrier's] point about farmers is that they are resilient and that's why we're giving the message as clearly as we can. But there are one or two little things starting to head in the direction in favour of the farmers as well."
Interest rates were coming down and the first signs of farmer input costs coming down - including fertiliser and fuel, were now being seen.
"But I do want to stress that this will put a good number of farmers' cashflows under pressure."
Asked if the payout would have been higher had it not been for the EU's re-introduction of subsidies for its dairy farmers, Ferrier said it was hard to say by how much.
"I don't know if we'll ever know if it would have been higher.
If the subsides are not a material impact on the market, we could be above $5.10."
The market, said Ferrier, "anticipates these things" and there had been a material drop in prices in the past few weeks, following the EU move.
CHRIS DANIELS/HERALD ONLINE
Fonterra company video: Milk payout drops
We are heading into some lean times ourselves too. Our milk price was around $16 cwt and now it looks to be around $10 cwt. I think it will be rough until the price recovers, here in the US and NZ. It will be interesting...
ReplyDeleteJennifer
I expected this figure Jennifer and it will go lower. Not good for anyone in the rural sector but people bounce back or they wouldn"t be farming.
ReplyDeleteYep, similar announcement made The Weekly Times here in Oz a couple of weeks back.
ReplyDeleteIt's going to get a lot worse before it gets better.
That's what worries me Jayne. There'll be a few people walking off the land. Global prices have been dropping on whole milk powder they'll bottom out somewhere but how low they go at this point is hard to know. One thing I do know here in the rural areas people are already hurting badly. Our community is feeling the pinch some families are thinking about moving to Auckland to get better opportunities. A sad fact of economic cycles.
ReplyDeleteIsn't it always the same in farming. The situation is just the same here in the UK. They do away with subsidies and give us a Single Farm Payment = then they begin to cut the price of milk and the cost of feed and fertiliser goes up astronomically. No wonder young people no longer want to farm.
ReplyDeleteJust read about the NZ real estate and dairy specialist PGG Wrightson closing up its Aussie offices :(
ReplyDelete