Fonterra revealed a $6.7m hand-out to its former boss even as it unveiled a slightly deeper drop in payments to farmers for 2011-12 than it had guided too, and stuck by forecasts of a further decline this season.

The New Zealand-based group revealed it paid a golden goodbye of NZ$8.22m, equivalent to $6.7m at today's exchange rates, to Andrew Ferrier after he quit as chief executive last year.

Sir Henry van der Heyden, who himself steps down as Fonterra chairman in December, acknowledged that it was "a lot of money", but said that the award reflected Mr Ferrier's contribution to the group, the world's biggest dairy exporter.

"The fundamental core of our payment system to management is based on performance, so this is the wash-up of Andrew's long-term incentives, and his short term-incentives," Sir Henry said.

Fonterra's accounts said that the payment to Mr Ferrier included "prior-period bonuses that have been paid in the current period, and termination entitlements including those arising from employment arrangements entered into by legacy companies prior to the formation of Fonterra".

'Ocean of milk'

The payout was revealed as Fonterra revealed that its farmers would receive NZ$6.40 per kilogramme of milk solids for the 2011-12 financial year, a decline of 19% year on year.

The sum was also marginally below the NZ$6.45-6.55 per kilogramme of milk solids the group guided too in May, a figure which reflected in part the pressure on prices of a year which "all around the world… saw record dairy production", Sir Henry said.

"Global dairy demand held up reasonably well, but this ocean of milk obviously impact on global commodity prices," with values at the GlobalDairyTrade auction, one of the group's innovations during Mr Ferrier's reign, falling to a 34-month low in May.

"The impact of this decline on overall earnings for famers has been eased a little by the much higher volumes of milk they produced."

Profits drop

However, Fonterra also revealed a decline in its dividend, to $0.32 per share, after earnings dropped 19.1% to NZ$624m.

The fall in profits, which came in at the middle of the forecast range, was blamed largely on one-off factors, without which earnings would have risen 10%.

At an operating level, a strong performance in exports, and in Latin America, more than offset a 20% drop in earnings from the Australia New Zealand business, reflecting price cuts for dairy products imposed "to support market shares across all categories".

"The trading environment in Australia remains challenging with a continued downturn in consumer spending and aggressive competition," Fonterra said.

Payout prospects

The group also stuck by expectations of a further decline in payouts for farmers in 2012-13 despite a recovery in global commodity prices, which in the UK prompted Dairy Crest this week to raise its farmgate milk price.

"While there has been a combined increase of 9% over the last two GlobalDairyTrade events, the recovery had been expected and was partly offset by further appreciation of the NZ dollar versus the US dollar," Fonterra said.

The group in August unveiled a forecat of a milk payment of NZ$5.25 per kilogramme of milk solids for the season, compared with NZ$6.08 per kilogramme of milk solids in 2011-12.