November 28, 2013

Fonterra maintains record high forecast payout to farmers

While reiterating that the company's margins would take a hit from erratic dairy prices, New Zealand's Fonterra maintained its record-high forecast payout to farmers for the current season.

The company said at its annual meeting that it forecast a total cash payout to farmers of NZD8.62 (US$7.03) for the 2013-14 season, based on a farm-gate milk price of NZD8.30 (US$6.77). It also confirmed its total payout to farmers of NZD6.16 (US$ 5.02) for the 2012-13 season.

"Extreme price and product mix and volatility will have negative impact on Fonterra's margins in the 2014 financial year," CEO Theo Spierings said in a statement, adding that it would be difficult to forecast when this volatility would reverse.

In August, Fonterra was involved in a food safety scare when the company said it found a potentially fatal bacterium in one of its products, triggering recalls of infant milk formula and sports drinks in nine countries including China. A government test later found the initial finding had been incorrect.

Fonterra is in discussion with Danone to resolve a dispute over the contamination scare as the affected ingredient was contained in products marketed by the French dairy company, which pulled its infant formula products from supermarket shelves in Asia and New Zealand.