Fonterra Payout a Global Economy Reality Check

NEW ZEALAND - The second payout revision downwards by Fonterra Cooperative Group in just over two months, is the reason why Federated Farmers warns farmers to budget conservatively. It is estimated this revision will see around NZ$500 million less come into the economy.

22 May 2012

2 minute read

Oceania

“When the last revision took place in March, we warned it might not be the final one before the end of the 2011/12 season. Since then, international dairy prices have fallen to levels last seen in August 2009,” says Willy Leferink, Federated Farmers Dairy chairperson.

“While this is due to increased global milk supply, it also coincides with major uncertainties over the direction of the world’s economy. We may be an island but economically we’re not.

“Only late last month, Westland Milk Products, the other big dairy coop, revised its current season forecast payout range down 30 cents to $6.30-$6.60 per kilogram of milksolids (kg/MS).

“Farmers ought to have two budgets prepared for their farm; one in the low $5 kg/MS range and the other in the mid to upper $5 range.

“Any budget based upon $6 kg/MS I wouldn’t recommend. The need to be conservative comes with $5.50 kg/MS being Fonterra’s opening 2012/13 season milk price.

“Seeing a new season milk price of $5.50 kg/MS will bring back unhappy memories of the 2008/9 season.

“The good news is that farm finances are now much better prepared and a downwards trend in global milk prices was well telegraphed. While 2008/9 was a bolt out of the blue, we always knew 2012/13 was shaping up as a tough season.

“That said a rocket needs to be put under councils and government to be absolute scrooges when it comes to policy bright ideas and spending. We don’t have an issue with ‘must haves’, but ‘nice to haves’, have got to be looked at sideways.

“Federated Farmers policy work will stop or pull back significant costs, but it’s the mindset that needs to change. Trade exposed exporters like farmers, tourism and manufacturing already face a volatile dollar without being tackled from behind with fee hikes and charges.

“The same applies to all companies who sell goods and services to farmers. This isn’t a time for them to be ‘creaming it’ as the payout revision eats straight into farm profitability.

“We need New Zealand to wake up to the reality that what happens in Europe, America and Asia affects us here eventually,” Willy Leferink concluded.