#Fonterra races to meet dairy demand

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FONTERRA will fast-track up to $NZ500 million ($467m) worth of projects aimed at boosting production of higher-margin dairy products, after conceding that demand from emerging markets was growing faster than expected.
 
The New Zealand-based dairy giant has announced that it would bring forward the planned capital investments after a lack of existing factory capacity contributed to a slump in first-half earnings.
 
Despite a bumper dairy season in New Zealand and record high global dairy prices pushing revenue 21 per cent higher to $NZ11.3 billion, Fonterra reported yesterday that net profit fell 53 per cent to $NZ217m during the six months ended January 31.
 
Normalised earnings of $NZ403m were down 41 per cent on the prior corresponding period, with the co-operative blaming its current asset footprint for the forced channelling of 25 per cent of its milk supplies into loss-making categories such as cheese, casein and other non-reference commodity products.
 
The mixed result is likely to serve as a wake-up call for Australia’s own dairy industry, which is being urged to invest in boosting its production and efficiency to capitalise on the booming demand from emerging markets, particularly Asia.
 
Just this month, Australia’s largest dairy processor, the Murray Goulburn co-operative, admitted that it would need to find up to $500m for capital projects over the next few years to boost its own global competitiveness. Fonterra has allocated an additional $NZ400m to $NZ500m towards capital expenditure over the next three to four years, which will include the installation of additional evaporators at its factories to process milk into whole milk powder. The higher-margin product is, on average, currently trading about $US1200 per tonne higher than last season.
 
Fonterra chief executive Theo Spierings admitted it was hard to keep pace with global demand.
 
According to Mr Spierings, although the company had accurately predicted the growing demand for dairy in emerging markets, the past six months had shown that the trends were moving faster than expected.
 
Demand for whole milk powder, in particular, was accelerating, he said.
 
«Delivering the highest shareholder returns means making the products which earn the best returns over time,» Mr Spierings said. «Since our inception in 2001, we have consistently invested in growing the capacity that counts, especially in milk powders.
 
«We will continue down this path but at a faster pace, ensuring assets come on stream ahead of expected increases in milk production.»
 
Fonterra has also emphasised the strategic importance of its Australian business, despite the region having struggled due to a competitive local market and lower export volumes.
 
Fonterra chief financial officer Lukas Paravicini pointed to the co-operative’s recent investment in Bega, in which it snared a substantial shareholding, and purchase of the struggling Tamar Valley company to underline the importance it placed on the Australian market.
 
Mr Paravicini said it was crucial that the business was able to leverage the strengths of each of its regions, which, for Australia, was the production of cheese, nutritional powders and whey. «We see potential in Australia that we have not captured yet,» he said.
 
Mr Paravicini said he expected further consolidation for the local dairy industry.
 
«Whenever there’s an opportunity, we will look at that,» he said.
 
Fonterra has maintained its farmgate milk price forecast of $NZ8.65 per kilogram of milk solids for the financial year. It plans to pay a full-year dividend of 10c per share.
 
Source: The Australian

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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