Fonterra took a swipe at the US as it braced New Zealand dairy farmers, who are already "under severe financial pressure", for a 12.5% cut in payouts - equivalent to more than NZ$800m.

The company, the world's largest dairy exporter, said that its payout per kilogramme of milk solids would drop from NZ$5.20 this year to NZ$4.55 for 2009-10, "lower than the board had anticipated".

The decline reflected weakness in the global dairy market which had been fuelled by America's decision to subsidise 92,000 tonnes of dairy products for foreign shipment

 "Just this week – at a time when we've been seeing some tentative signs of recovery in the global dairy market – the US government has announced export subsidies for their farmers, which is bad news for our farmers," Fonterra chairman Henry van der Heyden said.

'Big negative'

The lower payout forecast also reflected the weakening of the US dollar. Fonterra said it was working on a forecast of US$0.59 per NZ$1.00 compared with a recent rate of S$0.50 per NZ$1.00.

"The exchange rate has been a big negative," Mr van der Heyden said, adding that the cut was bad news for New Zealand's struggling farmers and the country as a whole.

"A payout at this level would take hundreds of millions of dollars out of the economy," he said.

Given Fonterra's farmers produce roughly 1.25bn kilogrammes of milk solids a year, a NZ$0.65 cut in payouts represents more than NZ$810m in lost farm revenues.

'Sobering'

The cut was termed "sobering" by Blue Read, chairman of Fonterra's shareholders' council, which represents the interests of the co-operatives 10,700 members.

"The forecast payout for the 2010 season takes dairy farm revenues back around 2007 levels, but farm costs have risen," he said.

Fonterra said it had bought forward to August, from October, a NZ$0.20 per kilogramme of milk solids payment relating to the 2008-09 season to help ease farmers' "extremely tight" cash flows.

Fonterra, which accounts for about 40% of world trade in dairy products and 20% of New Zealand's total exports, runs its marketing years from June 1-May 31.