Fonterra has had a record-breaking year in sales, payout to farmers and export volumes, but profits in its Australasian business fell, thanks partly to New Zealanders' demands for cheap milk.
The dairy giant announced on Thursday it was paying farmers $8.25 a kilo of milk solids for the 2011 milk season, pumping $10.6 billion into the economy in payouts and dividends.
After-tax profit rose by 13% to $771 million, with sales at an all-time high of nearly $20 billion - but underlying earnings in Australia and New Zealand, before one-off items are stripped out, fell by 17%.
Chief executive Andrew Ferrier says margins were squeezed in both markets. New Zealand consumers backed off if the price was too high, and Australia had a massive price war in liquid milk going on.
Farmers will spend more - Sir Henry
Fonterra stresses the record milk payout to farmers is a boost for the entire economy. A recent study shows farmers spend half their payment on locally produced goods and services.
Chairman Sir Henry van der Heyden says farmers will be reinvesting in their farms and spending more rather than paying off debts. Farmers generally are feeling more positive than they were a couple of years ago, he says, "and if there's a degree of confidence they are prepared to spend."
Farming supplier PGG Wrightson also believes dairy farmers are unlikely to use the payout for expansion and will instead concentrate on repaying debt.
Agro-chemical company Ravensdown says good returns from Fonterra this year have already led to strong fertiliser sales, and the record payout is unlikely to boost its margins much higher.
Fonterra-owned rural retailer RD1 says while dairy farmers will be frugal, they will invest in overdue maintenance.
Meanwhile, the co-operative is sticking to its forecast payout of $7.15 to $7.25 a kilo for the current season.
Mr Ferrier says he's confident that despite long delays, the farmers' share trading scheme will be implemented by the end of next year.
