New Zealand dairy farmers to get record payout for milk as prices soar worldwide

New Zealand's Fonterra Cooperative Group, the world's largest dairy exporter, raised its payout to farmers to its highest level ever Friday on the back of record dairy prices, an official said.

The dairy giant will pay 7.30 New Zealand dollars (US$5.80; euro3.70) for each kilogram (2.2 pounds) of milk solids for the fiscal year ending May 31.

That is 5.8 percent above the level the cooperative set in mid-December and 14 percent above the NZ$6.40 (US$5.11; euro3.24) per kilogram (2.2 pounds) of milk solids Fonterra forecast in August.

Fonterra is a cooperative grouping of about 11,000 dairy farmers. The price paid to farmers is set by returns the group gets from selling its products on domestic and world markets.

Chairman Henry van der Heyden said the farmers' payout is rising because commodity prices are holding up, partly due to a summer drought that has cut New Zealand's production.

"It's ironic that the dry conditions, which are hitting many farmers so hard, have driven up prices," he said.

While the increase will be welcome, "many farmers will just be clawing back the dollars they have lost from reduced milk production and increased costs for feed, fuel and fertilizer," he added.

Benefits from the record payout will depend largely on how national milk production has been affected by the drought. The dry spell is projected to cut NZ$894 million (US$713 million; euro452 million) from expected dairy earnings _ an average of NZ$79,400 (US$63,322; euro40,174) for each dairy farm.

Dairy exports represent over 20 percent of New Zealand's total export income. The sector employs more than 35,000 people on farms alone; thousands more are employed in related service sectors and in dairy factories.

Fonterra sells 95 percent of its production abroad and accounts for seven percent of the New Zealand economy's annual gross domestic production.