Chief executive Theo Spierings said today the dairy giant has reviewed its capital spending and was targeting a spend of $500 million to $600 million less for 2016 financial year compared with 2015.
The cooperative raised its dividend forecast for the year. Fonterra now expects to pay a 40c to to 50c dividend, up from an historical average of 32c a share.
It forecast a total payout for 2015/16 at $4.25-$4.35 a kg, comprising the revised farmgate milk price and dividend.
Fonterra said milk production was expected to fall by 2% this year compared with last season.
The surprise announcement was news of a 50c advance to farmers this season on top of the milk price and dividend.
This will be interest-free for two years and be repaid when the milk price recovers above $6.00/kg, to be funded by reduced capital spending.
The lower farmgate milk price follows sharp falls in whole milk powder prices, which have plummeted by 51.4% on Fonterra's GlobalDairyTrade platform since March this year.
AgriHQ estimated that a $1/kg drop in the milk price equates to about $2 billion less income for dairy farmers.
Chairman John Wilson said the fall in the milk price forecast was due to the continued "significant imbalance" in the global dairy market between weak demand and surplus supply.
"This imbalance and the challenge of lower prices continuing for longer than anticipated is a global issue, which dairy farmers around the world are increasingly grappling with," he said in a statement.
Fonterra has a dividend policy of paying out 65-75% of its adjusted net profit.
Related stories: Farmers cashing up assets and Cheaper milk may be months away
- By Jamie Gray, NZME News Service business reporter
