Bittersweet opener for farmers

Dairy conglomerate Fonterra has served up a bittersweet entree to its farmer-shareholders for the new season starting Wednesday, with a sharply increased in-house share price and an unimproved payout forecast.

Directors said yesterday that Fonterra's fair-value share price - not subject to sharemarket influence but based on a suggested range by Standard & Poors - would rise 16 per cent from last season, to $5.44 for 2005-06.

This is a 6.4 per cent increase on Fonterra's December estimated share value of $5.11 for the new season.

The payout forecast for the new 2005-06 season is $3.85 a kilogram of milksolids, the same as last season's kick-off price.

The new share price struck by directors means a farmer wanting to increase production or a new entrant to the dairy industry has to find $5.44 for every kilogram of milksolids supplied to the giant co-operative.

The average farm produces 100,000kg of milksolids a season, which means a new entrant must find $544,000 for shares alone.

Fonterra collected 1.2 billion kg of milksolids last financial year and had revenue of $11.8 billion.

The sweet news is that for the average shareholder with about 100,000 shares, the increase represents a gain of about $75,000 in value.

Fonterra senior financial executive Alex Duncan said that in aggregate, the equity value of the co-operative increased over the past year by $951 million to $6.7 billion as of May 31.

Federated Farmers dairy chairman Kevin Wooding said the increase in the share price showed confidence in Fonterra's future earnings ability in the added-value market and increased the value of shareholder equity, but could also deter milk growth and tempt farmers to exit Fonterra and cash up their shares.