Fonterra plays wait and see on payouts

While the big drop in the value of the dollar has helped Fonterra to boost its forecast final payout to dairy farmers this season, chairman Henry van der Heyden remain cautious.

Last week's 7c lift in forecast payout to $4.07/kg of milksolids is expected to add about $7000 to the earnings of the "average" dairy farmer this season.

Van der Heyden also told the Business Herald that production - while expected to be almost 2 per cent below budget - was still forecast to be 2.5 per cent to 3 per cent ahead of last season.

That should also add something to the average gross payout this year.

However, van der Heyden said it was too early to tell if the lower dollar would mean more income for suppliers next season.

"There's definitely upside around foreign exchange but we are seeing the easing of commodity prices too. So it just depends where that all plays out."

Van der Heyden was philosophical about the decision by state-owned Landcorp, New Zealand's biggest corporate farmer, to shift nearly one-quarter of its milk supply from Fonterra to rival Waikato-based exporter Open Country Cheese.

Landcorp will next season pull eight Waikato farms - accounting for about 1.8 million kilograms of milk solids - out of the Fonterra co-operative.

Van der Heyden said looking at the move by Landcorp in isolation was naturally disappointing. However, a "good number" of people wanted to join the co-op.

"We've actually got a lot of new land that wants to come in.

"So if you keep this in context of that overall [situation], we're very comfortable."

Meanwhile, Fonterra declined to comment on suggestions from sources that Nestle might be able to pull out of its Dairy Partners of America (DPA) joint venture with Fonterra in South America, if Fonterra failed to deliver 70 per cent control of Chilean dairy giant Soprole to the joint venture.

Fonterra, which currently has 57 per cent of Soprole, said its agreements with Nestle were subject to confidentiality clauses.

While Fonterra would not provide financial details, group director strategy and growth Graham Stuart said both DPA and Soprole were profitable and provided a platform for growth in the region, especially DPA.

"We have good, commercially based relationships with our partner in DPA and with our fellow shareholders in Soprole, and we are comfortable with both investments."

Van der Heyden said he could not confirm whether such a clause had existed: "I don't go down to that level of detail."

However he described the relationship with Nestle as very strong.

"The relationship and the performance of DPA is steps ahead of where it was a couple of years ago."