Keep Pressure On Fonterra

12 March 2004 PR 63/04

Keep Pressure On Fonterra

Dairy farmers will need to examine their budgets and put pressure on Fonterra Co-operative Group to perform in the wake of the co-operative's sharply lower forecast payout for 2004/5, said Kevin Wooding, Chairman of Dairy Farmers of New Zealand (DFNZ).

"Though the forecast may change, dairy farmers would be wise to prepare now for a cut in income," he said. DFNZ is the dairy industry group of Federated Farmers of New Zealand (Inc).

Mr Wooding's comments follow Fonterra forecasting a payout of $3.50 plus or minus five percent in the season beginning June 1. Assuming the forecast is accurate, $3.50 a kilogram of milk solids will be the lowest inflation-adjusted payout in 14 years and contrasts with the $4.15 expected in the current season.

"The 65 cents reduction from this year's forecast is a lot of money. For the average farmer producing 90,000 kilograms of milk solids a year, total income will fall nearly $60,000," he said.

"That will have consequences for the wider economy. Fonterra collects about 1.15 billion kilograms of milk solids a year, meaning $750 million will be removed from the domestic economy as a result of the lower payout."

However Mr Wooding was heartened by Fonterra maintaining its $4.15 forecast for the current season.

With the currency at historically high levels, a low payout is unavoidable to some extent. However a combination of other factors also makes up a payout, such as market demand for products and Fonterra's cost structure.

Mr Wooding said that farmers will need to:
- Save any buffer from this year's payout, which is the third highest for most farmers;
- Continually improve the cost efficiency of farm production systems;
- Reduce input costs;
- Put pressure on Fonterra to perform;
- Keep telling government to stop saddling us with unnecessary regulation;
- Put pressure on manufacturers benefiting from a stronger currency to pass those gains to their customers.

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