Fonterra to pay farmers significantly less next season

Many dairy farmers could struggle to break even in the months ahead following Fonterra's announcement on Thursday it may have to pay producers significantly less next season.

As a result of COVID-19, it has cut the price it expects to pay farmers this season to between $7.10 and $7.30 per kilogram, down from $7.60.

Fonterra sharemilker Craig Maxwell says being above $7 is a "fantastic result" all things considered, but the next season is starting in a few weeks and it isn't looking too bright. It was revealed farmers could get as little as $5.40 a kilogram.

"It's barely a breakeven price," Maxwell says.

The price of whole milk powder globally has slid 17 percent so far this year. On top of that, COVID-19 saw Fonterra sell fewer products overseas, and Europe and the US are making more milk products.

Fonterra CEO Miles Hurrell is urging farmers to be frugal.

"We recognise how hard this will be on some of our farmers. So the message we're giving farmers is to be prudent," Hurrell says.

It's especially hard when farmers are already dealing with a devastating drought.

"It's on a little bit of a knife-edge, we need some rain," Maxwell says.

But Fonterra's prices are still looking good. Its sales for the past nine months are up 8 percent on the same period last year, with normalised earnings up 59 percent to $815 million.

But milk sales are expected to turn rancid over the next few months as COVID-19 continues to affect exports.