Fonterra's $200m top-up buoys regions

Hugh Stringleman

Friday 12th December 2003

Fonterra Co-operative Group's 20c/kg milk solids Christmas present to 13,000 suppliers will be hailed throughout provincial New Zealand.

The co-operative has raised the milk payout forecast for the current season from $3.95 to $4.15/kg in response to firmer commodity prices and secure forward contracts.

It has also reduced business costs and corporate debt, while its foreign exchange programme protects the payout against further increases in the value of the NZ dollar.

This year's average conversion rate is 52USc, but next season's average will be higher, which will impact on the 2004-05 milk payment.

Service industries in provincial centres had already reported a significant slowdown in farmer purchasing, as a result of the NZ dollar appreciation effects on all farmgate returns during the past year.

But this week's announcement puts an additional $200 million into circulation over the coming six to eight months, from which the rural economy will receive a $1 billion boost.

The dairy processor and exporter has also forecast the fair value share price for the 2004-05 season of $4.50, an increase of 12c or 3% on the current season's value.

Fonterra directors settled on a value below the mid-point of a range provided by Standard & Poor's, $4.26 to $4.95, on the grounds of continued depreciation of the US dollar since October, when much of the information was provided to S&P.

Chairman Henry van der Heyden said the increase reflected the fall in debt, in particular a reduction in inventories, while commenting positively on the company's performance and its strategies for the future.

Meanwhile, Fonterra chief executive Andrew Ferrier has announced the closure of the Wellington head office of New Zealand Milk, the consumer products division, with 80 redundancies.

Three senior executives within Fonterra's top 10 are to leave; long-serving Dairy Board consumer products specialist and New Zealand Milk managing director David Pilkington, chief development officer Alexander Toldte and human resources director Glen Petersen.

These senior appointments under former CEO Craig Norgate have remained at Fonterra about two years, since the mega-merger.

New Zealand Milk will now be run from the new Auckland head office in the KPMG building in Princes St.

"Dairy farmers will be alarmed if the reorganisation and consequent staff changes hold back development of dairy-based foods at New Zealand Milk," dairy farming leader Kevin Wooding said.

"Looking back on Fonterra's formation it was clear that duplication costs would be taken out at some stage. So farmers must expect these types of changes which must improve efficiency.

"The most important thing is that it boosts the bottom line, which should mean a higher payout for dairy farmers struggling in the current difficult trading environment."

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