An extra 15 cents on the dairy payout will give Northland farmers an extra $13.5 million.
However, most of the extra money will go towards repaying loans Northland dairy farmers took from Fonterra to get them through hard times, including drought, two years ago, an industry leader says.
Federated Farmers Northland dairy chairman Ashley Cullen welcomed Fonterra’s decision this week to increase its 2016-17 forecast farmgate milk price by 15 cents to $6.15 per kg of milksolid, but said there was a catch.
“The extra 15 cents per kilo is welcomed but it will get swallowed up in (repaying) Fonterra support loans given to farmers two years ago. Most farmers would have taken up the loan which was interest free for two years.
“The arrangement was once the dairy payout went over $6 a kilo within two years of taking up the loan, anything over that amount will go towards debt repayment to Fonterra,” Mr Cullen said.
Interest on the loan will start kicking in from June whereas the final price for 2016-17 will be announced in September.
In November last year, Fonterra increased its 2016-17 farmgate milk price by 75 cents to $6/kgMS. An additional 75 cents brings $67.5 million to Northland’s economy.
A payout of $6/kgMS will earn Northland dairy farmers $540 million. However, the region will lose $13.5 million if all dairy farmers have to pay the extra 15 cents per kg of milk solids towards the Fonterra loan.
“Some farmers have used a lot of supplement in summer so they won’t have enough to get through winter but the increased payout will give them more money to buy the supplements.”
He said debt repayment to banks was still top priority.
Fonterra chairman John Wilson said a rise in world dairy prices in recent months reflected on an increase in the forecast milk price.
“The higher forecast Farmgate Milk Price of $6.15 per kgMS and the target dividend of 40 cents per share gives a forecast cash payout of $6.55 for a 100 per cent shared-up farmer which is good news for our farmers and their communities,” he said.
Fonterra is forecasting an improved farmgate milk price of $6.50 per kg of milksolid for next year but that will be announced around the beginning of August.
“The increase in the forecast milk price for the current season and the improved forecast for 2017-18 will be welcome news for our farmers following two challenging seasons on farm.
“Stronger production in March and April has partly offset lower peak milk production and collections are now expected to be down 3 per cent for the season, a much better outcome for our farmers than had been anticipated earlier in the year,” Mr Wilson said.
Mr Cullen said despite the loan repayment, $6.15 per kg was “a lot firmer” price and that the final payout, in all likelihood, would be around that price.