Bigger payout to Aussies upsets Fonterra farmers

Fonterra chief executive Andrew Ferrier is expected to get a grilling today from dairy farmers upset that the co-operative is paying New Zealand shareholders a lower milk price than Australian suppliers.

It is understood that Australian farmers supplying milk to Fonterra's fully-owned subsidiary, Bonlac, are being paid up to A$4.60 ($5) per kilogram of milk solids.

Fonterra's 12,000 farmer shareholders have been told to expect a payout of $4 per kg of milk solids this year.

Ferrier is to address the Dairy Farmers of New Zealand annual conference in Christchurch where the issue is expected to be raised.

Dairy Farmers chairman Frank Brenmuhl said the Australian issue was not on the official agenda but that there was nothing to stop farmers raising it from the floor.

"Fonterra was paying the market price we need to keep our businesses operating and, ultimately, contributing to the payout to our shareholders," a company spokesman said yesterday.

"Australia is an important source of supply for our international customers and it's vital that we maintain a presence there."

Differences in the nature of the milk market across the Tasman rendered direct comparisons relatively meaningless, he said.

But a group of farmers is understood to be unhappy with the discrepancy. It highlighted everything that was wrong with the local industry, said one, who asked not to be named.

He said it was true to say that there was a competitive environment in Australia.

"But that's the problem. They've got no competition in New Zealand so they can pay shareholders what they like."

The Australian payouts are understood to include two types of incentive bonus.

A new supplier incentive of 36Ac per kg is being used to attract farmers, who are then expected to sign up for three years. An existing supplier incentive of 56Ac per kg is being paid to farmers for every kilogram of milk solids they produce above and beyond what they produced the year before.