The support payment amounts to 50c/kg milksolids (MS) of share- or voucher-backed milksolids supplied from June 1 to December 31.
Wairarapa-based accountant Lawrence Field said depending on the shape of a farm’s milk production curve, it equated to closer to 28-30c/kg MS across the whole season’s production.
Most farms achieve 56-62% of their full season’s production by the end of December.
For a farm producing 160,000kg MS for the season, following a typical milk curve with 56% in the vat by the end of the year, the loan would amount to $45,000.
At 100,000kg MS production for the season with 60% in the vat by the end of December the loan would total $30,000.
While the loan is linked to milksolids production through to the end of December, payments don’t kick in until October and are paid in instalments over following months through to May in a similar fashion to the way the advance schedule is set up.
Field’s cashflow table (Table 1) is for a farm producing 160,000kg MS with 56% of that production by December 31.
Based on how that debt was accumulated using Fonterra’s instalment schedule, the equivalent savings in overdraft no longer required would create interest savings through to May 31, 2017, when the loans began to accrue interest.
Baker and Associates dairy consultant Chris Lewis also pointed out the interest-free period across the instalments didn’t amount to two full years interest-free.
Money advanced in May 2016 would have interest owing on it a year later.
From May 2017 any outstanding loan amounts would be charged an interest rate that would be at Fonterra’s cost of borrowing up to a maximum of 0.5% over the wholesale inter-bank lending rate.
That would continue to bring farmers a saving over their normal overdraft or even term debt rate.
Sharemilkers
Only Fonterra shareholders are eligible for its co-operative support loan but there’s nothing stopping farm owners passing on the loan or sharing it with their 50:50 or variable-order sharemilkers.
But there’s some caution required because of possible liability for fringe benefit tax (FBT).
FBT might apply in certain circumstances and farmers should seek advice before committing to passing on the loan.
Fonterra looked at making loans directly available to sharemilkers but deemed it was not prudent to have a direct agreement with a farm owner’s sharemilker when it had no oversight of the agreement between the two parties.
Difficulties would arise with any sharemilkers shifting jobs over the course of the loan agreement.
AgFirst consultant James Allen said care was needed when passing on the loan in terms of how any agreement between the farm owner and sharemilker was structured.
Ultimately the farm owner was liable for the debt and farm owners needed to take advice on what security might be appropriate even though Fonterra had lent the money to them on an unsecured basis.
