KEY POINTS:
Dairying regions around the nation are anticipating a $750 million shot in the arm in October when Fonterra gives its farmers a 60c/kg boost in their advance payments.
The regional economies expect to benefit when Fonterra's suppliers are paid an extra 60c/kg when their progress payments are lifted to $4.20/kg, up from the planned $3.60.
The extra money will be shared between 10,883 farmers from the 83c lift Fonterra announced yesterday in its forecast total payout for the current season. By the end of the season, in May next year, Fonterra is promising farmers they will have received a new record payout of $6.40, up 87c from the forecast of $5.53/kg at the start of the season.
The new forecast is a lift of 47 per cent on the 2006-2007 payout of $4.35 - representing a jump of nearly $2 billion in farmer revenue for the season.
Dairy Farmers of New Zealand's vice chairman, Lachlan McKenzie, a Fonterra supplier, said before the announcement that the record payment would need to be put into context because in inflation-adjusted terms, it would not match the value of a lower payments in earlier years.
But calculations show that the previous record, $5.33/kg in 2002 was only worth $6.04 in 2007 dollars.
After the announcement, Mr McKenzie said the revised forecast was higher than he was expecting, but it would lift farmer confidence, and allow them to clear debt.
It would also have a huge "multiplier" effect on provincial economies:
the Ministry of Agriculture and Forestry calculates that every extra dollar received by primary producers brings a $4 benefit to the community.
Federated Farmers' dairy sector chairman, Frank Brenmuhl, said the nation should be celebrating the trickle-down from Fonterra's planned payout boost.
"More money in the back pocket of dairy farmers means more taxes paid, more employment, more spending in rural areas and, ultimately, in cities - so all New Zealanders benefit directly or indirectly," Mr Brenmuhl said.
"This is a good news story, not only for farmers, but for New Zealand," said Fonterra chairman Henry van der Heyden.
"This is hard cash coming into New Zealand ... real money coming from exports and benefiting the wider community".
And there may be more to come - dairy prices have risen about 16 per cent since the start of the season.
The payout forecast is already within a cooee of the $6.60 which the Westpac Bank has predicted is possible, and some farmers have been openly speculating about a final payout closer to $7/kg.
With international commentators saying the high international prices will run for a couple of years, the key factor will be Fonterra's old bogey - exchange rates.
The key NZ dollar exchange rate has retreated from the 22-year high on July 24 of US81c - it was yesterday at US71.61, after dropping below US66.50c last week.
Fonterra has previously said that each US1c variation in the exchange rate when it signed sales contracts can vary farmgate payouts by NZ10c/kg. Its payout calculations were based on an exchange rate at US71c or below over the year.
"Rates have not settled and could go either way," Mr der Heyden said. "If the lower dollar is sustained over time we could see more upside in the payout."
So far, farmers are doing well - yesterday's forecast effectively means the "average" farmer will receive nearly $700,000. This is based on an earlier Fonterra prediction that milk production may match last season's record 1.25 billion kg of milksolids.
Agriculture Minister Jim Anderton said the "amazing result" was a cause for celebration, he said, though it was possible, "that some New Zealanders will attempt to snatch defeat from the jaws of victory by finding something to complain about".
Some farmers have themselves started complaining - that the windfall payout has led to some agricultural companies "price gouging" to cash in the good times.
- NZPA
