High milk price gnaws at Fonterra profit

The high milk price puts pressure on Fonterra's results. Although turnover increased sharply in the broken financial year - which runs from July to January - the income reversed. The good news is that the New Zealand dairy cooperative is not reporting a drop in demand in China.

As a result of rapidly rising dairy prices, sales increased by 9% to NZ$10,8 billion. However, net profit declined 7% to $364 million. Converted this equates to €225 million. The decline in profit is a result of the record high milk price which is in the offing for members in the current season ending in June. In addition, members can count on a dividend of 5 cents per share, which is also a record.

The gross profit margin decreased from 17,4% to 14,9%. Nevertheless, Fonterra is quite profitable if you compare the results with, for example, a cooperative such as FrieslandCampina. Last year, the Dutch dairy cooperative booked €172 million profit† Fonterra CEO Miles Hurrel is pleased with the half-year figures. All the more so because the milk price is 30% higher than in the same period last year, but the results have not caved in. 

The Chinese demand for dairy continues to support sales, Hurrel said. Although the import figures of dairy fell considerably at the end of last year, the CEO speaks of continued good demand. Margins on the Chinese sales market are under pressure, in contrast to sales in Africa and the Middle East, where earnings have increased.

War is a threat 
Fonterra sees the war between Russia and Ukraine as a threat. Not so much that this directly affects the business, but indirectly in the form of disrupted chains, high oil and grain prices. At the end of February, Fonterra gave the export To Russia to cease. Fonterra is also physically present in Russia through the joint venture 'Unifood'. The business of this company has continued as normal until now. The top of the cooperative is considering leaving Russia for good, but that decision has yet to be made. 

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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