Farmers in New Zealand's pillar dairy industry were warned Wednesday of tough times ahead after cooperative giant Fonterra announced a lower-than-expected dividend for shareholders.
In its half-year results, Fonterra announced an interim dividend of 10 NZ cents (8 U.S. cents) a share and an estimated full-year dividend of 20 to 30 NZ cents (15 to 23 U.S. cents).
Along with a forecast price of 4.70 NZ dollars (3.59 U.S. dollars) per kilogram of milk solids, farmers could expect a forecast cash payout of 4.90 to 5 NZ dollars (3.74 to 3.82 U.S. dollars) per kilogram.
Fonterra Co-operative Group Chairman John Wilson admitted the payout was below farmers' expectations at a time when dairy prices were already low, but he blamed market oversupply and volatility for a "subdued" performance.
Fonterra's net profit was down 16 percent to 183 million NZ dollars (139.79 million U.S. dollars), Wilson said in a statement.
"Volatility continues to influence international dairy commodity prices and given this, we recommend caution with regards to on-farm budgets," said Wilson.
The Federated Farmers industry group warned the 5-percent drop in the dividend was "going to hurt" its members.
"Part of the story we've heard today is that there has been an oversupply in the market place. The feeling from Fonterra is that the market signals should correct this at some stage," Federated Farmers Dairy Chair Andrew Hoggard said in a statement.
"However, part of the challenge in this space is that a lot of dairy farmers around the world are insulated against the market signals through trade barriers and market protections."
Industry body DairyNZ said it calculated the average farmer would need 5.40 NZ dollars per kilogram of milk solids to break even, and warned the situation was unlikely to improve soon as this season's production would be close to last season's record.
"What we are concerned about is that the low milk price this season coupled with a low retrospective payment this winter -- about a third of what was received last year -- will see many farmers dip into the red this spring. For many, they may not pop back up into the black for some time," DairyNZ Chief Executive Tim Mackle said in a statement.
The government's Statistics New Zealand agency announced Wednesday New Zealand had a small trade surplus of 50 million NZ dollars (38.16 million U.S. dollars) last month, down from a surplus of 797 million NZ dollars (608.35 million U.S. dollars) in February 2014, due to a plunge in dairy export prices and quantities.
Export values of milk powder, butter, and cheese -- New Zealand 's largest export commodity group -- fell by 41 percent year on year in February to 913 million NZ dollars (697.85 million U.S. dollars), while the quantity was down 10 percent.
More than three-quarters of the drop in value was due to falling exports to China, it said.