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Fonterra gives struggling dairy farmers early cash as the ACCC investigates

Pablo Blazquez Dominguez/Getty Images

Fonterra, the world’s biggest dairy exporter, is making its dividend payments early to help farmers hit by a cut in the price it pays for their milk.

Australia’s competition watchdog, the ACCC (Australian Competition and Consumer Commission), is investigating the cuts by Murray Goulburn and Fonterra to to determine if they involve “misleading conduct” or whether there are elements of “unconscionable conduct”.

Gary Helou last month stepped down as CEO of Murray Goulburn, the largest processor of milk in Australia, as he downgraded the cooperative’s profit forecasts. The price of its ASX-listed units dropped 55% to 97 cents from $2.20.

The industry is suffering from a global glut of dairy products caused by weaker demand and overproduction. Slower economic growth in China, a major export market for milk producers, has slowed demand.

Both the New Zealand-based Fonterra and Australian cooperative Murray Goulburn cut farm gate prices to between $4.75 and $5 a kg from from $5.60, leaving farmers with unexpectedly lower cash payments.

“The ACCC has been following the public reports in relation to the recently announced price cuts to dairy farmers by Murray Goulburn and Fonterra,” says chairman Rod Sims.

“The ACCC is interested in the timing and notice of the cuts, the period in which farmers have been given to consider their options and all of this against the backdrop of supply arrangements that place a lot of risk on farmers.

“The ACCC will consider whether the changes have involved misleading conduct or whether there are elements of unconscionable conduct.”

Today Fonterra chairman John Wilson says the 10 cents a share dividend will be made on June 7, bringing payments so far this year to 30 cents a share.

“While the milk supply and demand imbalance continues to impact global milk prices and our forecast Farmgate Milk Price, the business is delivering on strategy and has maintained the good performance levels seen in the first six months of the financial year,” Wilson says.

“The earlier payment meets our goal of getting cash to farmers earlier in winter when they need it, as we signalled at our interim results announcement.”

Fonterra plans another 10 cents a share dividend in August, subject to financial performance.

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