Fonterra changes foreign exchange policy

The soaring kiwi dollar has hit Fonterra hard this year, slashing tens of thousands from the average dairy farmer's income.

Under the new policy, Fonterra will no longer speculate on future exchange rates.

Instead, each month the cover will be put in place 15 months' ahead at the conversion rate available. All its foreign earnings will be 100 percent covered.

The old policy saw half of Fonterra's earnings hedged last June, leaving the other half exposed to exchange rate shifts.

Since then the kiwi rocketed by nearly 20 percent against the greenback, slashing farmers' income.

The co-operative has moved to hedge nearly all its earnings to the end of the season in June. It will meet farmers this week to explain the policy.

In a letter to farmers, the company said it was "neither feasible nor appropriate" for Fonterra to "take a view" when deciding the best foreign exchange strategy because dairy industry experience had shown that it only ever delayed movements in foreign exchange.

The co-op stressed that the new policy "will not ensure certainty of payout in respect of the current or future season, but should reduce volatility in payout from one season to the next".

It chose the 15-month period because cashflows at the beginning of each season "relate to the previous season's payout".

At the beginning of each season it will be hedged for the entire year.

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