Some farmers will miss out on Fonterra's loan support package, which it has put in place to help its shareholders cope with plunging dairy prices, Federated Farmers dairy chair Andrew Hoggard says.
Photo: RNZ / Alexander Robertson
Last week, Fonterra slashed its forecast milk price payout from $5.25 to $3.85 per kilogram of milk solids for this season.
It also increased its dividend to between 40 and 50 cents a share, and reduced its New Zealand milk volume forecast by 2 percent compared with the previous season.
In light of falling global dairy prices and a low forecast milk payout, the dairy co-operative is offering its shareholder farmers an additional 50 cents per kilogram of milk solids, which it is calling an interest-free loan to be repaid when farmgate milk prices return to $6 per kilogram.
Fonterra expects to pay out $435 million in support in the next six months.
Mr Hoggard said Friday's announcement was a mixed bag.
"We knew it was coming but I guess when you finally see it there then it sort of sinks in that it's not going to be pretty and there's a lot of thinking about 'how on earth we can change things on the farm to get through with the least pain possible'," he said.
"I don't think it's going to be possible to avoid pain this year, it's just how we minimise it really.
"It was quite surprising to see the lift by that much [the dividend] you know there's been the pressure and the talk they need to start performing, and so a strong dividend shows that that performance is happening...I guess we'll just have to wait and see for the financial results to be able to see where that dividend came from and what were the business units that performed to deliver that."
Farmers were also waiting to hear a confirmed payout for last season, which would be announced in November.
Mr Hoggard said while Fonterra's offer of a loan was welcomed, sharemilkers would be left out because they did not hold shares with the dairy co-op.
"It's going to be extremely difficult for variable order share milkers to get through this season. Aside from a few motorbikes and probably other bits of equipment, that's all the equity they've got," he said.
"They don't have the equity in the cows, so banks don't have anything to loan them against, by and large. Unless they're on a farm that's well set up to be extremely low cost, they're not going to be making a profit, so effectively they're going to be working for free, or in some cases if they're borrowing, they're going to be paying to work.
"It really is going to be a mission for them and maybe some of the options will be they need to be put onto a contract milking arrangement for the year."
Mr Hoggard said it would be down to farm owners to work out a plan with sharemilkers to make sure both business could get through the slump.