WELLINGTON (New Zealand) - DAIRY giant Fonterra cut its forecast payout to dairy farmers on Wednesday for the third time in six months, citing falling global commodity prices, recession-hit economies and growing stockpiles of milk products.

The New Zealand farmer-owned cooperative also blamed an unstable local dollar for the slimmer year-end pay checks for its 10,600 shareholders.

Fonterra cut the 2008-09 dairy season payout to 5.10 New Zealand dollars (S$4.05) per kilogramme of milk solids, down NZ$0.90 from its November level and NZ$1.90 below its initial payout forecast.

The latest payout reduction will remove more than NZ$1 billion in cash from New Zealand's economy, cutting the average dairy farmer's annual income by more than NZ$100,000 , Fonterra said.

Last season Fonterra paid farmers a record NZ$7.90 a kilogramme - an annual payout of NZ$800,000 for the average dairy farmer, At the lower milk price, total annual payout is likely to be just over NZ$6 billion compared to NZ$9.4 billion last year.

Fonterra controls more than 95 percent of New Zealand's milk supply, is the country's largest multinational business, its second-biggest foreign currency earner and accounts for more than 24 per cent of the nation's exports.

Fonterra chairman Henry van der Heyden said the dairy industry has been hit as hard as other commodities in the international financial crisis.

'The surplus global supply ... together with the contraction in global demand ... has been unprecedented in terms of how fast and how far it has driven prices down,' he said.

'We are now taking a much more pessimistic view than we were at the end of last year,' he said, noting that Britain, Japan, the US and western Europe are now all in recession.

'The only uncertainty is how long will it take' for markets to recover, he said. -- AP