Fonterra is giving its New Zealand dairy farmers a small financial boost by paying part of its final dividend earlier – a love that will help them deal with tight cashflows brought on by the slide in global prices.
In a statement to stock exchanges on either side of the Tasman yesterday, Fonterra chair, John Wilson said a solid performance during the nine months to April 30 this financial year had enabled the co-operative to declare the 10 cents per share dividend yesterday.
Payment will be made on June 7, bringing dividend payments so far this year to 30 cents a share.
“While the milk supply and demand imbalance continues to impact global milk prices and our forecast farmgate milk price, the business is delivering on strategy and has maintained the good performance levels seen in the first six months of the financial year,” he said in the statement.
"The earlier payment meets our goal of getting cash to farmers earlier in winter when they need it, as we signalled at our interim results announcement."
The total forecasted dividend is 40 cents a share for the year.
"We intend to declare another 10 cents per share dividend in August, subject to financial performance continuing to support the current forecast earnings per share range of 45 to 55 cents," Mr Wilson.
Fonterra was expecting the New Zealand milk collection for the season to be 1.558 million kilograms of milksolids, which is 3% down on last season.
Fonterra said its full year earnings per share forecast range reflected a range of possible impacts through to the end of the financial year.
“These include the completion of announced business sales in Australia, our New Zealand ingredients sales and inventory profile, our ability to contract and ship late season milk in difficult global market conditions, and the deteriorating geopolitical situation in Brazil and Venezuela," it said yesterday.
Fonterra will announce its opening 2016-17 season farmgate milk price forecast at the end of this month.
The irony of the accelerated dividend payment across the Tasman won’t be lost on dairy farmers supplying Fonterra in Australia (or rival Murray Goulburn for that matter).
The competition watchdog, the ACCC (Australian Competition and Consumer Commission), is investigating the cuts in milk prices by Murray Goulburn and Fonterra to to determine if they involve “misleading conduct” or whether there are elements of “unconscionable conduct”.
The industry (and it is not just in Australia) is suffering from a global glut of dairy products caused by weaker demand and overproduction. Slower economic growth in China has reduced demand as well, along with sudden changes in government rules.
Fonterra and Murray Goulburn cut farm gate prices to between $4.75 and $5 a kg (in late April and earlier this month) from from $5.60, leaving farmers with unexpectedly lower cash payments.
As well the companies claim many farmers have been overpaid as a result and will have to repay those extra payments (or milk prices will be held lower for longer to allow the repayment).
“The ACCC has been following the public reports in relation to the recently announced price cuts to dairy farmers by Murray Goulburn and Fonterra,” according to Commission chairman Rod Sims.
“The ACCC is interested in the timing and notice of the cuts, the period in which farmers have been given to consider their options and all of this against the backdrop of supply arrangements that place a lot of risk on farmers.
“The ACCC will consider whether the changes have involved misleading conduct or whether there are elements of unconscionable conduct.”
