Fonterra flagged the dent that drought was knocking into to New Zealand's world-leading dairy industry as the debt-heavy co-operative revealed that farmers have invested NZ$270.7m (US$194m) in additional shares.

"Drought conditions are starting to bite," Sir Henry van der Heyden, the Fonterra chairman, said.

"Drought is lowering milk production in some regions."

The north of New Zealand's North Island, which was declared a drought zone by New Zealand's government last week, has been particularly badly affected, with a record-dry November being followed by continued dry conditions.

Separately, Landcorp, New Zealand's biggest farming group, said it was moving lambs and dairy cattle south from farms in the northern state of Northland, saying that the drought was "pretty dire" for the average farmer, according to Radio New Zealand.

Fund raise

Sir Henry's comments came as Fonterra revealed that one-third of its farmer members had applied for extra shares, following the group's move last year to allow purchases beyond levels they are entitled to by milk production.

The proportion is significantly less than the near-90% of the 10,500 farmers who voted for the liberalisation, with the sum raised falling short of the theoretical maximum of NZ$1.1bn.

However, Sir Henry said that the group was "pleased" with the result, noting the impact of drought and cash flows which "continue to be tight".

Fonterra farmers had until January 21 to buy extra - so-called "dry" – shares, up to 20% beyond the holding their milk production entitled them too.

The co-operative sells some NZ$17bn of dairy products a year in 140 countries, and is responsible for 40% of global trade in butter, cheese and milk powder.