New Zealand dairy giant Fonterra has announced it will not pay a dividend to its farmer shareholders this year.

The company said it was unable to pay a dividend after it took a significant write-down on the value of some of its assets, which will see the farmer-owned co-op report major financial losses this year

At the start of 2019, Fonterra had forecast it would pay farmers a dividend in the range of 10c to 15c per share, which would equate to a dividend cheque of €9,300 to €14,000 for the average farmer supplier.

However, Fonterra announced on Monday it was cancelling its 2019 dividend after it wrote down the value of several of its assets to the tune of €475m to €500m (NZ$820m to NZ$860m). These significant write-downs will see the dairy co-op report losses of between €340m to €390m (NZ$590m to NZ$675m) for its 2019 financial year.

Fonterra said the write downs are related to its Brazilian business DPA Brazil, its New Zealand consumer dairy business, its China Farms investment and its Australian Ingredients business. Shares in Fonterra dropped 5% in value following the announcement, close to record lows of NZ$3.57 per share.

After carrying out a strategic review of its business in the last year, Fonterra chief executive Miles Hurrell said it became clear that Fonterra needed to reduce the carrying value of several of its assets.

“Since September 2018 we’ve been re-evaluating all investments, major assets and partnerships to ensure they still meet the co-op’s needs. We’ve taken a hard look at our end-to-end business, including selling and reviewing the future of a number of assets that are no longer core to our strategy. The review process has also identified a small number of assets that we believe are overvalued, based on the outlook for their expected future returns,” said Hurrell.

It’s likely that Fonterra has taken a write-down on the value of these assets as it should make them easier to sell. The co-op has been seeking a buyer for its stake in DPA Brazil for some months now but struggled to attract interest at its high valuation.

Blow

The suspension of the 2019 dividend will be a blow to Fonterra’s suppliers and the rural economy in New Zealand. A dividend in the range of 10c to 15c per share would have seen the co-op pay out between €93m and €140m to its farmer shareholders.

For 2018, Fonterra only managed a dividend payment of 10c per share, which is a historical low.

In previous years, the co-op’s dividend has been as high as 40c per share, which would mean a dividend payment of more than €37,000 to the average Fonterra farmer and an injection of almost €372m into New Zealand’s rural economy.

The absence of a dividend this year could have serious knock-on effects. Similar to the single farm payment in Europe, many New Zealand farmers have come to depend on the annual dividend payment as a means of living because farm profits are being used to large farm debt.