NZ dairy company Synlait to pay farmers slightly more than Fonterra

New Zealand dairy company Synlait Milk said it expects to pay its farmer suppliers slightly more than market leader Fonterra Co-operative Group Ltd this season, as it warned the dairy sector faced another tough period.

Dairy was until recently the backbone of New Zealand's economy, representing around 25 percent of exports but dairy prices have been hard hit by China's economic slowdown and global oversupply.

Synlait will pay its suppliers NZ$4.50 per kilo of milk solids for the season that started on June 1. Late last month Fonterra forecast it will pay its farmer shareholders NZ$4.25 per kilo of milk solids.

Weak dairy prices have put significant pressure on New Zealand farmers. More than 85 percent of dairy farmers are estimated to be running at a loss.

The vast majority of New Zealand farmers supply Fonterra, which currently has around 10,500 shareholders. However, smaller companies like Synlait are beginning to make inroads. Synlait currently has 173 suppliers, which will expand to 201 in the current season.

Synlait Chairman Graeme Milne said low global commodity prices continued to drive low milk prices and milk production in New Zealand has started to ease in response.

"Unfortunately, increasing milk production in Europe, soft demand from China and trade sanctions in place with Russia continue to be more important than reduced milk production in New Zealand," he said.

Against that backdrop, Synlait also lowered its forecast for the season that ended May 31 to NZ$3.90 from NZ$4.20.

Synlait will pay a higher than usual advance rate for milk suppliers for the new season in order to offset the prospect of another tough season, it said.

"Cash flow is really important at this time of year and we've prioritized a significantly higher advance rate for our milk suppliers' benefit," said Milne.