Fonterra Cooperative Group chief executive Theo Spierings says legislation will mean drastic changes in the Chinese infant formula market with the removal of between 1800 and 2000 brands in the next 15 to 18 months.
Regulatory changes require each entity to have only three brands and three different recipes of infant formula in a bid to crack down on the grey market and allay consumers’ food safety concerns by reducing fake formula.
Spierings said Fonterra was well-positioned in every segment in China where it is already the global market leader for ingredients such as whole milk powder but a lot of things have changed in the past few years including a shift to sales from mother and baby shops to e-commerce.
Twelve months previously, only 2% said they had any interest in cutting production.
Back then, improved prospects for dairy farmers around the scrapping of milk quotas in April, 2015 was still the feelgood story of recent years in agriculture.
But a two-year fall in global milk prices has dampened enthusiasm.
A different, sobered dairy farmer has emerged from this year’s Irish Examiner ICMSA survey.
At agricultural shows between August 14 and September 4, 209 dairy farmers were among the 526 taking part in the survey.
Despite milk prices starting to lift in mid-August from a two-year low, they were far from happy with how their profession is going, with optimism in milk production sliding from 84% in 2014 to only 64% now.
Their co-ops will be hoping they can continue monthly milk price rises on top of last week’s increases of as much as 2.5c per litre — because this survey reveals that dairy farmers may be ready to take out their disappointment at deterioration in dairy earnings on their co-ops.
Over the past three years, dairy farmers were asked how much did they intend to change their milk output.
The results show a 65 per cent jump in net profit after tax compared to the previous year.
The company’s New Zealand officials say the results show «a stronger business, despite ongoing challenges in global dairy markets».
In May this year, Fonterra announced a drop in milk prices for its Australian suppliers.
It cut prices from $5.60 per kilogram of milk solids (kgms) to $5kgms after rival processor Murray Goulburn dropped its milk prices.
The company further cut the milk price for the 2016-17 financial year to $4.75kgms.
At the time, farmers said the lower price meant they were producing milk for below the cost of production.
Victorian farmer and Fonterra supplier Karrinjeet Singh-Mahil said the company had destroyed the trust she once held in Fonterra.
«We’ve had families that have lost an awful lot, some who have walked away from farming as a result of what’s happened.
«This has ruined people’s lives here in Australia and yet it’s being put to an absolute record profit in New Zealand.»
In announcing the results, Fonterra said debt had been reduced by $1.5 billion to $5.4 billion. Sales volumes increased 4 per cent.
The company’s Australian milk supply manager Matt Watt acknowledged it’d been an incredibly difficult year for suppliers.
But he defended the cuts, saying they were necessary because the company was losing money in Australia.
«Contextually, we need to be providing a return on that capital in order to get the continued support, to be able to invest in the kinds of assets and markets that will drive and improve return both for shareholders and our farmers here in Australia,» he said.
Fonterra chairman John Wilson, in a statement, conceded it had been a tough year for suppliers.
«The 2015/16 season had been incredibly difficult for farmers, their families and rural communities, with global dairy prices at unsustainable levels,» he said.
«We have done what we can to support our farmers with the co-operative support loan, and early payment of dividends.
«After a period of deliberate and disciplined attention to the business, we have become a stronger co-operative operationally, financially and in our mindset with a clear sense of direction and a structure which will support real momentum in our strategy going forward.»
Source: ABC
Link: http://www.abc.net.au/news/2016-09-22/fonterra-announces-annual-results-profit/7867142