Fonterra warns farmers about global uncertainty

Covid-19, geopolitical issues in key markets and dry weather are all factors of concern, says the New Zealand dairy co-op

Dairy giant Fonterra has sent an email to farmer members in which it advised them to consider the level of global uncertainty when making important on-farm decisions.

The co-operative, which recently reported group earnings before interest and tax (EBIT) of NZ$806m (£398m), told farmers it would retain its forecast milk payment to them of $7-$7.60 per kgMS (£3.4-3.7) for the 2019-2020 season.

Signed by chair John Monaghan, the email warned that the Covid-19 pandemic could impact economies and people’s wellbeing for an extended period, up to the end of 2021.

Fonterra will announce its opening forecast Farmgate Milk Price range for the 2020-2021 season next month.

Related: Fonterra reports profit in 2020 interim results

According to Reuters, Mr Monaghan told members the co-op would consider the high levels of uncertainty around the world, stronger supply signals from key dairy regions, and the NZ/US exchange rate when deciding its opening forecast Farmgate Milk Price range for the 2020-2021 season.

He said Fonterra is in a better position than others in the industry to cope with Covid-19 because it has already contracted a high percentage of milk sales for the current season.

Over the past 12 months, the co-op has been resetting the business in line with a new strategy. But despite the positive performance in 2019, its board has decided not to pay an interim dividend, due to “the current uncertainty of the impact Covid-19 could have on earnings in the second half of the year”.

Announcing Fonterra’s annual results last month chef executive Miles Hurrell said he was concerned about the potential impact of Covid-19 on global demand, as well as geopolitical risks in key markets such as Hong Kong and Chile, and ongoing dry weather conditions in New Zealand which could impact collections and input costs.