Feds says put Fonterra payout in context

Federated Farmers commends Fonterra for raising its forecast milk price by 40 cents per kilogram of milk solids, but is warning that this rise must be kept in context.

"Although this sounds like a lot of money and we're very pleased by the announcement, we need to keep the actual monetary value of this announcement in perspective," says Lachlan McKenzie, Federated Farmers Dairy chairperson. "With around half of New Zealand's dairy herds in drought declared areas, milk production is down significantly. So although those farmers might be getting a higher payout, they're also producing less. "Most farmers will be using this extra payout to help get them through what has been a difficult season. Many farmers throughout NZ have had to dry their cows off early due to the drought and will have had to buy in feed to keep their cows in good condition.

"Hopefully this increase and the signal that milk prices could be at similar levels next year will give more confidence to banks and allow credit to flow. "The big black cloud on the horizon now for dairy farmers, is not the rain but the costs from Government in the form of the Emissions Trading Scheme (ETS) and the National Animal Identification and Traceability scheme (NAIT). The ETS alone is going to cost me in excess of $20,000 per year. "While the announcement does indicate that commodity prices in milk powder are strong, it will put pressure on the profit Fonterra makes from the non-powder products it sells overseas, like branded products in Asia such as Anlene.

"The increase in the pockets of Fonterra suppliers means an increase in those who supply other processors, as these independents use Fonterra's payout as a benchmark for their own. "I also urge Fonterra to stick to its policy to retain earnings on its profit, as this is the best way to increase the money inside the co-operative," Mr McKenzie concluded.