New Zealand's dairy industry could become like this country's unprofitable meat industry if foreign investment in farms and processing plants continues, warns Labour's primary industries spokesperson, Damien O'Connor.

'Milk production for Fonterra was down four per cent last year. There's concern that over time Fonterra will face a supply risk and struggle to fill the huge processing facilities it has built.

'If growth in milk production coincides with ongoing competitive foreign investment in farms and processing plants, the dairy industry will end up in an unprofitable meat industry conundrum,” he says.

Damien's comments follow yesterdays' announcement by Fonterra that it would pay farmer shareholders a 40 cent dividend and that the company has made a half year profit of $409 million.

'Fonterra's profit announcement will be small consolation for dairy farmers facing an extended period of low milk returns.

'The capital restructure of Fonterra which established Trading Among Farmers created an inevitable tension between the milk price and dividend payout. Outside investors have been demanding a better return on their unit investments.

'While analysts and investors may praise the outcome, farmers are waking up to the long term consequences of the new structure in tight times. Most will still be entitled to the dividend stream from their co-operative shares but the pressure on many to sell the shares and keep their farm viable will lead to larger differentials over time in returns to suppliers of milk to Fonterra.

'Increasing the value of the dividend is also unlikely to be of benefit to the nearly 4,000 sharemilkers, who will also miss out on the payment.

'Moving more product into value added income streams should be increasingly beneficial for the company but should not come at the expense of lower milk payments to supplying shareholders.”

Damien says the profit announcement, may be hailed as a success by Fonterra but many dairy farmers will struggle to share the celebration.

New Zealand First has also criticized the dairy co-operatve for its $3.90 payout to farmers, while making a substantial company profit.

'Fonterra's fat half-year profit and interim dividend is no substitute for a higher milkprice. In fact, Fonterra's big profits can only come from screwing down the price it pays farmers for milk,” says New Zealand First Leader and Member of Parliament for Northland Winston Peters.

'Milk price is a far better yardstick for innovation and delivery than Fonterra's profit. Milk price is also better for the provincial economy, given more than half of a dairy farmer's business income is spent locally on what they need on the farm.

'What this result also shows up is the incompatible tensions between Mr Key's ‘dry' investor mates in the Fonterra Shareholders Fund and the interests of hard working ‘wet' shareholder-farmers and sharemilkers.

'Back in 2012, the former Agriculture Minister David Carter boldly claimed the Fonterra Shareholders Fund would be a ‘significant step towards a competitive and innovative dairy industry'. That was the promise but where is the performance?

'Government meddling to create this fund is a Trojan horse for a full sharemarket listing. The longer this dip continues and the bigger Fonterra profits are, the more likely the foreign-owned banks will put pressure upon farmers over their shares.

'Given government inaction, New Zealand First is now working on legislation to amend the Dairy Industry Restructuring Act.”

With Fonterra announcing a massive half year profit the Government needs to tell the co-operative to revert back to its previous terms of trade, says New Zealand First's Primary industries spokesperson Richard Prosser.

'It shows the arrogance of Fonterra's directors and management that they make this huge profit and at the same time they are cutting supplier and contractor rates by 10 to 20 percent while lengthening the time it takes to pay them from 30 to 90 days,” Mr Prosser adds.

'This half year profit of $409 million is clear proof that Fonterra can easily pay their bills in 30 days and that there is no need for a cut in rates to suppliers and contractors.

'It's appalling that Fonterra is counting its money and thumbing its nose while farmers bleed and suppliers suffer.

'The Government needs to get off its hands and tell Fonterra to act in a fair and proper manner towards its suppliers and contractors who make a major contribution to the dairy industry and to rural New Zealand,” says Richard.