Anger at Fonterra cut forecast

Global - Fonterra TD Farm
REDUCTION: Fonterra angers with payout reduction. (Photo: Alecsandro Andrade de Melo)

THERE’S anger Down Under after the giant Fonterra dairy co-op cut its forecast 2017/18 farmgate milk price, and said it will not pay a dividend for the rest of the year.

The co-operative is reducing last season’s forecast milk price by five cents (2.6p) to NZ$6.70 (£3.47) per kgMS and says it’s likely the full year dividend will be just the 10 cents paid in April, down from 40 cents (20.7p) last year.

The Fonterra Shareholders’ Council calls this unacceptable.

Council chairman Duncan Coull says the feelings of farmers he had spoken to range from anger to genuine concern about the state of the co-op.

“Farmers get up every day and do all they can to do their bit for the co-op and supplying high quality milk and they expect the same of board and management at the other end,” he says in a statement.

Fonterra chairman John Mon-aghan said the board has made its decisions in the best long-term interests of its farmer shareholders and unit holders.

“It is important for our co-operative to have a strong balance sheet and, as we indicated in May, the higher milk price, which is good for our farmers, has put pressure on Fonterra’s earnings, and therefore our balance sheet.”

Monaghan says the year which was already challenging due to the payment to Danone over the 2013 botulism scare and recall and the losses from Fonterra’s Chinese Beingmate venture.

“You never want to have to reduce the milk price at the season’s end, but it is the right thing to do and NZ$6.70 remains a strong milk price,” he says.

“Maintaining a strong balance sheet has helped us to support farmers during tough seasons through our Co-operative Sup-port Loan and being able to bring forward the Advance Rate Schedule and get money to farmers earlier in the season.

“We need to do everything within our control to keep these options on the table for when farmers need them. This means keeping our balance sheet strong.

Monaghan says he wanted to be upfront with farmers and unit holders.

“During the process of closing our books for the financial year end, the need for these actions has become clear,” he says. “Our forecast performance is not where we expected it would be. While the numbers are not finalised, our margins were less than we forecasted right across our global Ingredients and Consumer and Foodservice businesses.”

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