Ratings service Standard and Poor's has downgraded Fonterra's credit rating from A to A-minus, but the co-operative insists their underlying financial strength and credit quality remain strong.

'This is recognised by Standard and Poor's maintaining of our rating in the ‘A' category and reflects our fundamental strength and financial discipline,” says chief financial officer Lukas Paravicini.

Fonterra have seen their credit rating drop from A to A-minus. Photo: File.

'It is important to note that the revised rating will not have any impact on Fonterra's strategy or on farmer shareholder payout.”

The co-operative's current debt is at expected levels for this stage of the investment cycle.

'We carefully planned our investment strategy by first reducing our gearing over a number of years to enable us to make higher levels of investment in key strategic opportunities,” says Lukas.

'These investments are making the co-operative stronger and positioning us well for the future.

'We have built additional manufacturing capacity in our home base of New Zealand which is improving returns by giving more product options during the peak production period.

'Our planned investments in China are building our presence in our number one strategic market.”

Fonterra are also continuing its strong financial discipline, including capital investment management, setting a prudent advance rate payment to farmers for the current season and applying its dividend policy to ensure an ongoing retention of a portion of earnings.

'In addition,” says Lukas, 'we are progressing well with our business transformation.

'This will further strengthen our financial position. Global dairy prices are also recovering, which is a positive development, particularly for our farmer shareholders.”

Standard and Poor's noted that its new methodology for agricultural co-operatives introduced in March does not always adequately capture the significant financial flexibility, and hence strength, of the co-operative.

'Given this, we are disappointed that Standard and Poor's has not reconfirmed its rating from April – especially when global dairy prices have significantly improved and we have continued our strong financial discipline.”