29 May 2014

Dairy industry in good shape - minister

8:03 am on 29 May 2014

Fonterra's opening payout prediction for the 2014/15 dairy season of $7 per kilo of milk solids shows the industry is in good shape, Primary Industries Minister Nathan Guy says.

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Mr Guy said he was not too surprised Fonterra on Wednesday dropped its forecast for the current season by 25 cents to $8.40 per kilo of milk solids.

"When you think what's happened to the Global Dairy Auction since February, it's back by around 22 percent, so it's probably not too surprising that they've reduced their payout by 25 cents.

"But ... $7 a kilo - farmers can still make money from that, they can still pay down debt and boost their businesses through a capital injection, so our longer term future looks very bright for our dairy industry."

However, dairy industry analyst Susan Kilsby, of NZX Agrifax, said there needed to be more transparency around Fonterra's following of the milk price manual, which was used to calculate the price of milk.

Fonterra had knocked 55 cents off what the manual said the true price of milk should be, because products such as cheese and casein were fetching much lower prices than the milk powders the calculations in the manual were based on, she said.

It was not too clear to people outside of Fonterra what's going on, Ms Kilsby said.

"Certainly, this was a very unique year in terms of where commodity price movement in the relative product streams and something that's unlikely to occur again, and also it's something we haven't seen a lot of in the past.

"At the moment, there isn't huge transparency. When they start moving away from that manual, it does reduce that transparency - so it certainly makes some farmers ask questions around that, and also investors ask some questions as well, so yeah, greater transparency around that would certainly help all parties."