Fonterra's offer of ''modest relief'' to its suppliers was not as encouraging as it first seemed, Westpac senior economist Michael Gordon said yesterday.
Fonterra lowered its farm-gate milk price for the current season to $3.85 a kg of milksolids from an initial forecast of $5.25 kg/ms - right on target from predictions made earlier in the week.
In recognition the dairy industry was facing a ''very tough season'', Fonterra had offered some modest relief on two fronts, Mr Gordon said.
First, it would help farmers to smooth cash flow across seasons by providing a loan of 50c per shared-up kilogram of milksolids.
The loan would be interest-free for two years and repaid once the farm-gate milk price rose above $6 kg/ms.
However, the second measure was less encouraging that it first seemed, he said.
Fonterra was forecasting improved earnings of 40c to 50c a share for the added-value side of the business.
Fonterra's stated dividend policy was to pay out 65% to 75% of earnings over time.
Taking the midpoints of those ranges would give a dividend of 32c a share, not a significant improvement on last season's forecast of 20c to 30c a share.
Fonterra expected milk collection to be 2% lower than last season as a result of reduced stocking rates and less use of supplementary feed.
Compared with an average milk price of $5.60 kg/ms, yesterday's announcement implied $3.3 billion less revenue than normal for Fonterra's suppliers, Mr Gordon said.
