Dairy payout seen as recovery, not reward

“We’re just getting back into equilibrium,” says dairy farmer Mark Cressey.

Kiwi dairy farmers have received one of the largest cash injections in the history of the industry, but for Cressey, the payout is more about restoration than gain.

Fonterra’s recent sale of its consumer brands, to French dairy giant Lactalis, has returned $3.2 billion to New Zealand farms.

Cressy, a Methven local, told the Guardian that the payout is “better described as a return of capital than a financial windfall,” restoring value that had previously been lost.

Cressey paid $6.50 a share when he first purchased his farm.

“By three or four years ago, they were valued at just $2,” he said.

“We’d lost $4 a share… to me, it wasn’t a windfall. It was getting back to where we started, really.”

While the Fonterra funds have provided a welcome cash injection, the payout is still best treated cautiously, Cressey said.

“We’re not rushing into any major investment, we’re going to reduce some debt, and then it’s just business as usual.”

For Cressey, his recent spending decisions, including the installation of pivot irrigation last winter, had already been planned, with the payout arriving at an essential time.

“The timeliness of this has been great… but we’ve just got to be wise about what we do with this, rather than just blow it all on expenditure that’s not thought out.”

Across the industry, farmers are prioritising debt reduction and financial stability over new spending. 

Cressey said many viewed the payment as a correction rather than new income.

“I think most farmers will be responsible with this and not just go blowing it, a lot of people are talking primarily about debt reduction.”

That approach may limit any immediate boost to local economies, Cressy told the Guardian.

“It does help that these businesses are carrying less debt, so they have more free cash, but I can’t necessarily see a big injection of cash from farmers spending large at the moment.”

Contract milker Brad Fallaver agreed.

“The money will mostly be absorbed into the farms,” Fallaver said.

“Everyone is really focused on paying down debt, especially as costs continue going up. Fuel, fertilizer, feed, everything is more expensive.”

As farm businesses strengthen their balance sheets, Cressey warned that the influx of money could place upward pressure on costs.

“The concern I’ve got is that it’s going to fuel inflation,” Cressey told the Guardian, and rising input costs could quickly offset gains.

“Everybody wants a part of it, and everyone from vets to mechanics could easily put prices up.”

Despite the historic size of the payout, Cressey said most farmers see this as part of a longer financial cycle, rather than a one-off gain.

“There is a lot of trust in the leadership of the company at the moment,” Cressey said.

“This money has come at an essential time, and most farmers, including me, absolutely supported the sale.”