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Drought could cost Fonterra farmers NZ$500m
FoodBev Media

FoodBev Media

21 February 2008

Drought could cost Fonterra farmers NZ$500m

*Fonterra says the worsening drought situation could cost its dairy farmers as much as NZ$500 million by the time the season ends in May. *

Chairman Henry van der Heyden says that the dry spell has already cost farmers about NZ$60 million in milk payout, and on-farm losses would continue to mount unless there is significant rainfall.

“The weather is key. And every day without rain is hurting farmers, and will have a flow-on impact for local communities and the broader economy. This has really taken the shine off what should have been a fantastic season for our farmers, with a record payout. Farmers are facing up to some very real challenges, both in terms of lost cash flows and also in managing their farms with very little feed available.”

Van der Heyden says Fonterra had forecast a 3% increase in milk supply for the 2007/08 season. However, the record dry summer over much of the country means season-to-date milk production is now falling below last year.

“The dry spell is widespread and is hitting farmers hard in most parts of the country. On a daily basis compared to the last year, Waikato is down 27%, Bay of Plenty is down 21%, Taranaki is down 9% and Southland is down 1.5%.

“Clearly, we’ll be right there with farmers hoping for rain. We've been looking into supplementary feed options and how we can support farmers and rural communities in other ways. But the stark reality is that there's a real feed shortage both in New Zealand and overseas.

“While Fonterra is now facing something of a double whammy, of a drop in milk production and a Kiwi dollar close to US80 cents, we're holding to our forecast of a payout of $6.90 per kilogram of Milk Solids,” he says.

Fonterra CEO Andrew Ferrier adds: “At this stage, we're also confident we can meet all our customers’ contracted orders, but supply is tight. Given our expectations of significantly reduced supply in New Zealand, we now find ourselves effectively booked up for the season. This is forcing us to advise customers that we may not be in a position to take all new orders for New Zealand supply."

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