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Fonterra farmgate milkprice update a ‘mixed blessing’

11 December 2013

Fonterra farmgate milkprice update a ‘mixed blessing’

Farmers will have split views on Fonterra Cooperative Group confirming the farmgate milk forecast at $8.30 per kilogram of milksolids (kg/MS). While they will be pleased with that confirmation they will be less pleased to see the dividend forecast being cut by two-thirds to ten cents per share.

“The dividend is a direct marker to the financial performance of Fonterra as a company,” says Willy Leferink, Federated Farmers Dairy chairperson.

“Farmers will be happy to see the milk price confirmed but since 85 percent of the dividend payout goes to farmer-shareholders, they will have mixed feelings since it’s a 22 cents per share haircut.

“But knowing what my farms have produced in the season to date, it's no surprise to find that Fonterra has been pushed to process what our farms have produced.

“We don't wish to see the surge in milk volumes and then milkpowder to mask wider issues in the product portfolio.

“Management needs to note the concerns we shareholders will have on the value-add, which seems to be struggling right now. While key markets continue to struggle for growth that is set against a backdrop of improving economic numbers, so why are we missing out?

“At least milkpowders are doing the business for 'New Zealand Inc' right now. There are billions in direct export income being generated which gets multiplied in the domestic economy many times over.

“The export performance in North Africa, Asia and of course China should put the naysayers on free trade in their rightful place.

“Every Kiwi has a stake in our industry and the $235 million expansion of Paihatua,on top of developments at Darfield, are tangibe examples of what I mean.

“While the Board could have theoretically lifted the milkprice forecast payout to $9.00 kg/MS, we support the Board's decision not to do this.

“Don't forget this time last year we were looking at a great season until drought in the North Island ripped that season to shreds.

“There's plenty of water to go under the bridge, or not, if we get drought again. That's why farmers need to budget conservatively. Don’t bank the farm on a forecast but use it for productive and environmental works. In some places, the two are really one in the same thing.

“From our perspective on the milkprice forecast, we much prefer to see the Board under promising but we are still awaiting management to over deliver on the value add,” Mr Leferink concluded.


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