Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The current season’s farmgate milk price jumped 15c to $6.15/kgMS and, with Fonterra’s forecast dividend of 40c a share, the co-op’s farmers can look forward to a $6.55/kgMS payout for the year to July 31.
Fonterra also forecast an opening price of $6.50/kgMS for the 2017-18 season, starting June 1.
This is music to farmers’ ears: the improved forecasts follow two very poor seasons in 2014-15 and 2015-16, when farmers struggled to break even. At $6.50, most farmers will be set up for a season in the black.
Farmers were expecting Fonterra to deliver good news; five consecutive Global Dairy Trade auctions had hoisted the price index and, crucially, the return for whole milk powder, the price setter.
The solid payout figures are not only cheering-up farmers and their families; rural towns will also get a much-needed financial boost.
Federated Farmers says based on Fonterra’s forecast ($6.15) and current production cycles, an extra $280 million is expected to flow through the New Zealand dairy sector and wider provincial communities this season.
Given the amount of milk we are producing at present this means the average dairy farm will be $23,000 better off. This will enable investment in farm businesses and infrastructure, little seen during the last two tough years.
And Feds dairy chairman Andrew Hoggard points out that farmers will, importantly, also have more money for pressing on towards their environmental goals, which many have kept in view despite their modest returns.
The New Zealand dairy sector employs at least 40,000 workers and is widely acknowledged as a large and crucial contributor to regional economies. So now the regions and their towns and service centres will again be boosted as encouraged farmers resume spending.
All this said, Fonterra and its farmers are wary of the fickleness of the global dairy trade. Farmers will be mindful of the recent downturn and the short-notice volatility of markets.
But for now, farmers will have a bit more money to spend and rural NZ will reap the rewards.
