UPDATE: Fonterra farmers say good to see results trump rhetoric on earnings upgrade
(Adds farmer comment)
By Fiona Rotherham
Nov. 16 (BusinessDesk) - Dairy farmers say Fonterra Cooperative Group, the world’s largest dairy exporter, is finally starting to deliver better business returns which are meant to counter low farmgate payouts when global dairy prices are low.
The Auckland-based cooperative raised its forecast available payout range for this season by 5 cents as it cuts costs and boosts margins to record levels, even as milk volumes in New Zealand decline by 5 percent.
Fonterra has indicated the forecast dividend may be in the 35-to-40 cents per share range up from 25 cents last year, which disappointed many farmers who expected to gain more from the value- added side of the business when dairy input prices were down. The revision would mean a likely total payout to farmers of $4.95 to $5 per kilogram of milk solids after retentions, compared to $4.65 last season.
Federated Farmers’ Dairy spokesman Andrew Hoggard said good news was welcome because farmers didn’t get too much of that these days.
“It’s good to see a better business performance as it’s one area farmers have raised as being a bit disappointed in to Fonterra,” he said. “It’s good to finally see some actual results rather than just rhetoric.”
Shareholders’ Council chairman Duncan Coull said farmers had given the message to the cooperative they expected to see a lift in the value-add side of the business given the ongoing decline in global dairy prices.
“Given the volatility in the market and lower milk price environment it’s encouraging to see some more balance in the total shareholder returns,” he said.
Coull had criticised last season’s 25 cent dividend as being at the low end of farmer expectations.
Fonterra’s boost in operational performance for the first quarter of 2016 and business transformation benefits being delivered earlier than expected means it has also been able to increase the rate at which farmers are paid support of 50 cents per kgMS under an interest-free loan scheme instituted to help farmers through the current season. The total amount paid up to December is rising from 18 cents to 25 cents.
The co-support loan remains interest free until May 2017 and chairman John Wilson said a decision would be made in December on how long that support would be offered for. To date, 75 percent of eligible farmer shareholders have signed up for it.
Coull said the co-op support was really important for farmers who are facing tight cash-flows.
“Any assistance in that regard will be welcomed,” he said.
Hoggard said the loan would make a “reasonable amount of difference” in a poor season like this and when it’s still at an early stage of the season to be predicting the final payout.
The cooperative is not expecting global dairy prices to lift significantly until the middle of next year and has said whole milk powder prices on the GlobalDairyTrade auction need to hit US$3,000 per tonne in order for it to meet the current $4.60 farmgate milk price payout, before dividends are added.
Fonterra also confirmed 835 staff had been made redundant as part of its two waves of restructuring this year, up from 750 announced in August.