Billion-dollar boost for Fonterra farmers 

Source: ONE NewsJersey cows

There has been a billion-dollar boost for the New Zealand economy with Fonterra announcing a big jump in its forecast milk payout to farmers for the current season.

Dairy co-operative Fonterra says it will lift the payout from $5.10 per kilo of milk solids to $6.05.

The increase amounts to around $1 billion in extra revenue for New Zealand's 11,100 Fonterra farmers, and is $1.50 more than the $4.55 forecast at the beginning of the 2009-2010 season.

Fonterra says the increase is due to a strong increase in commodity milk powder prices which have offset a stronger currency. 

Over the past four months, the average price of whole milk powder on Fonterra's online auction has risen by a total of 88%.  

Fonterra chairman Henry van der Heyden says that while the higher forecast reflects the co-operative's increasing confidence in international dairy prices, he sounded a note of caution.

"It's heading in the right direction and we're making the most of the opportunities for our farmers. But, we also know there's a risk of rapidly rising prices potentially bringing on more milk from other countries. We saw this happen in 2007 and we saw how quickly the market can fall as a result," says van der Heyden.

In 2007, Fonterra's payout rose to $6.40 per kilo of milk solids - a record at the time until a new high of $7.90 was announced for the 2007/2008 season in May last year.

Falling dairy prices and a drop-off in demand saw the payout tumble last season to $5.20 per kilo of milk solids.

Fonterra Shareholders' Council chairman Blue Read says farmers will be pleased and surprised at the size of the latest forecast increase.

"The fluctuations in the forecast adjustments our farmers have been getting for their milk, particularly during the past two years, clearly demonstrate the volatility of the global market place," he says.

Read says the news should restore farmers' confidence that the food industry is one of the best to be in, especially during an economic downturn.

Monday's updated forecast includes a 75 cent increase in the advance payout for milk to $4.00 per kilo of milk solids.