Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
Chairman John Wilson says the lower forecast milk price reflects a prudent approach to ongoing volatility in the global dairy market.
The Global Dairy Trade price for whole milk powder is a big influencer of the farmgate milk price and it has declined by almost 10% since 1 August 2017.
“While the result of the arbitration with Danone has impacted our earnings guidance for the season, it has no influence on our forecast Farmgate Milk Price,” says Wilson.
“What is driving this forecast is that despite demand for dairy remaining strong, particularly in China, other parts of Asia and Latin America, we are seeing strong production out of Europe and continued high levels of EU intervention stockpiles of skim milk powder.
“This downward pressure on global prices is being partly offset by the lower NZ-US dollar exchange rate,” says Wilson.
The drop will not affect the advance rate paid to farmers for milk.
“Our strong financial position, customer order book at this point in the year, and confidence in demand means that the Board is able to increase the payments made in January by 10 cents per kgMS and will hold the Advance Rate through to the payments in May,” says Wilson.
“In effect, our farmers will receive equal or higher payments for their milk over this period than were scheduled under the previous $6.75 milk price.
Fonterra has also updated its full season New Zealand milk collection forecast due to ongoing challenging weather conditions. The cooperative has reduced its forecast by 1% to 1,525 million kgMS – the same volume as last season.
