Fonterra, the world's largest dairy exporter, has predicted a 77% increase in its milk payments to farmers as drought in New Zealand helps slow the decline in global milk prices.

Fonterra today (30 May) announced a 60-cent increase in the co-operative's 2007/08 forecast payout to NZ$7.90 ($6.17) per kg of milksolids and a record opening forecast of NZ$7 for next season.

Fonterra accounts for about 40% of the international trade in butter, milk powder and cheese, and process about 95% of New Zealand's milk.

Last year, the company paid the 10,900 farmers who supply its milk about NZ$5.6bn, or $4.46 a kilogram.

Key factors in the increase in payout were the continued strength of international dairy commodity prices - underpinned by a shortage of New Zealand production due to the drought - a weakening New Zealand dollar and performance gains within the company, Fonterra said.

"This is good news for our farmers to have the extra cash flow at a time when they are facing sharply rising input costs, which DairyNZ confirms are up by 32% over the past year. It will also go some way to make up for the production lost this season due to the drought," Fonterra chairman Henry van der Heyden said.

Fonterra's farmer-sharholders have welcomed the news.

Shareholders' council chairman Blue Read said: "The lift in this season's forecast payout is good news for Fonterra farmers and a forecast of NZ$7.00 is a great start for the year ahead. It hasn't been the easiest season for many farmers with rising costs and widespread drought so this will have a positive impact on our farming businesses."