Fonterra boosts profit as low milk prices hit farmers

[WELLINGTON] New Zealand's Fonterra - the world's largest dairy cooperative - announced a 123 per cent rise in interim profit on Wednesday but warned its farmers faced "unprecedented pressure" amid a slump in global milk prices.

Fonterra said net profit for the six months to January 31 was NZ$409 million (S$376 million), up from NZ$183 million in the previous year.

The amount of milk processed rose eight per cent to 12.6 billion litres and earnings before interest and tax increased 77 per cent to NZ$665 million.

Fonterra dominates the dairy business in New Zealand where the sector accounts for about one-fifth of total exports and is considered crucial to the national economy.

The result was widely expected as global milk prices remain depressed after scraping 12-year lows last year as Europe lifted production and demand from China fell.

The low prices mean Fonterra pays less for milk, its main raw material, but hits the bottom line of its 10,000-plus shareholder farmers, who receive less for the product they supply to the cooperative.

"The supply and demand imbalance in the globally traded dairy market has brought prices down to unsustainable levels for farmers around the world, and particularly in New Zealand," chairman John Wilson said.

In a bid to ease the squeeze on farmers, Fonterra said it was doubling its interim dividend to 20 cents per share.

It also said a 20 cent dividend for the second half of the year, normally paid in October, would be paid early in two 10 cent instalments in May and August.

"Our management is aware of the need for strong performance to ensure that we get every possible cent back into farmers' hands during a very tough year," Wilson said.

Chief executive Theo Spierings insisted the outlook for the global dairy sector was good and prices should start rising later this year.

"Global dairy consumption per capita is growing at three percent (per year), so the long-term perspective is good. This is a temporary imbalance," he told reporters.

However, Fonterra's interim results documents added the rider: "Either a supply or demand shock could significantly change this outlook." The Fonterra Shareholders' Fund, the listed arm of Fonterra, was up 0.34 per cent at NZ$5.95 at midday in an overall market down 0.31 per cent.

AFP