New Zealand dairy giant Fonterra promised to bring forward dividends on Wednesday, as the same slide in milk prices that helped it more than double first-half profit continues to eat into revenue for the co-operative’s farmer-shareholders.
“There’s unprecedented pressure on them (farmers), it’s very tough for those families,” said Fonterra chairman John Wilson. The firm earlier reported lower milk purchase costs helped its July-December net profit jump 123 percent to NZ$409 million ($276 million), in line with estimates.
Slowing economic growth in New Zealand’s top export market, China, and a global oversupply of milk products have seen dairy prices plummet from 2013’s records. That has left Fonterra’s farmer-shareholder base dealing with drastic drops in income over the last two years.
On Wednesday Fonterra said it was bringing forward dividend payments to provide cash faster to struggling farmers. It said it planned two payments of NZ$0.l0 cents each in May and August, in addition to its interim dividend of NZ$0.20 in April, double its interim dividend a year earlier.
At 0350 GMT, Fonterra shares were down 0.5 percent, compared with a 0.3 percent rise for the benchmark index.
“Overall I thought the results provided very little for farmers to get excited about,” said Susan Kilsby, dairy analyst at AgriHQ. “I thought we may have seen something a little bit more positive on the dividend side and that hasn’t materialised.”
Fonterra earlier this month reduced its forecast farmgate milk price to NZ$3.90 per kilogram of milk solids (kgms) from NZ$4.15 per kgms, in another blow to farmers after plummeting milk prices had slashed their collective incomes by billions in the past two years.
“At the end of the day it (the advanced dividend plan) is small when you put it into the context of $3.90 milk forecast,” said Nathan Penney, rural economist at ASB. “They’ve had a (credit) ratings downgrade last year so they’re looking to do what they can without picking too many material risks.”
Standard & Poor’s lowered its long-term rating on Fonterra to ‘A-‘ from A in October, citing a weaker financial risk profile.
Fonterra also said its China farms reported operating losses of NZ$28 million for the half.
Chief Executive officer Theo Spierings told Reuters in a telephone interview that he expected the farms would become profitable in 12 to 18 months.
“If we connect our branded business to fresh milk, we capture all the downstream value and can make significant profits with our Chinese milk,” he said.
Source: Reuters
