Fonterra dividend payout change a concern

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Some Southland sharemilkers could lose thousands of dollars in income because of changes made by Fonterra to how it pays the dividend portion of its payout.

The changes were designed to help the dairy giant increase capital for expansion but sharemilkers are worried the move will hamper their chances to progress towards farm ownership by reducing their income.

The change was approved by Fonterra's shareholders at the annual meeting last month.

The milk payout is made up of two portions – a milk production portion based on output and a value-added part based on actual profit.

Under standard sharemilking agreements, farmers and sharemilkers split the entire payout, usually 50-50 but depending on their sharemilking arrangement.

The change means the value- added portion is now a dividend, which can be paid only to the shareholder farmer.

Federated Farmers sharemilkers section chairman Matthew Richards is worried some farmers might try to avoid paying the sharemilker's percentage of dividend, even though they were legally entitled to it.

"It's up to sharemilkers to talk with their farmers and let them know they're entitled to a share of that. That could, in some cases, cause a few issues and that's what we're concerned about."

The average 50-50 sharemilker agreement on a farm producing 150,000kg of milksolids each year could potentially lose $15,000 next year, Mr Richards said.

But if milk prices remained high and that portion of the payment grew as Fonterra predicted, they could potentially be out of pocket by $50,000, he said.

A meeting was planned in Southland for next month to outline the issues and offer solutions.

A sharemilker said he was worried about the impact it would have on the sharemilkers' income.

Fonterra general manager commercial, trade and operations Jason Minkhorst said all payments were made to the farmer, with whom Fonterra had contractual arrangements, and the farmer paid the sharemilker according to their agreement.

Fonterra has recognised the changes affect the payment terms between farmer shareholders and sharemilkers and has devised a new payment system to balance the originally agreed split – the dividend-related payment adjustment.

That would allow Fonterra to take out of the milk-price portion the equivalent dividend amount owed to the sharemilker.

Mr Richards said farmers must provide written agreement to do this by February 28 to ensure the payment terms agreed are honoured.

Otherwise, the entire dividend portion would be paid to the shareholder on April 20 and sharemilkers would face a more- difficult challenge to get the share of the payout they are entitled to, he said.

mark.hotton@stl.co.nz