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Fonterra chief executive Miles Hurrell.
Soaring whole milk powder (WMP) prices are lifting forecast milk price to Fonterra farmer suppliers but it is also affecting the co-op’s profitability.
Fonterra’s first quarter results have taken a $60 million hit, thanks mostly to WMP prices rising 30% compared to first quarter results last year.
The co-operative has delivered a total group earnings before income and taxes (EBIT) of $190 million for the three months ending October 31.
Chief executive Miles Hurrell says there have been a number of factors at play in the first quarter.
“We’re seeing stable sales volumes in our foodservice channel, but a milk price at these high levels has squeezed margins. Our Chilean business continues to improve but tightening margins and weaker local currency in other markets have impacted our consumer channel overall.
“In our Ingredients channel, we’re seeing margins in our longer-term pricing contracts return to more normal levels, which has helped push Total group gross margin up from the last quarter last year.
“We continue to see the benefit of our focus on financial discipline with lower interest expense, and operating expenditure down 2% on the same quarter last year.”
Hurrell says “looking at the whole picture”, he’s proud of what’s been achieved.
“With EBIT of $190 million and a strong farmgate milk price, we are starting to consistently deliver solid commercial outcomes.”
While the impacts of COVID-19 continue to be felt around the world, Hurrell says the co-op is working hard to deliver for farmer owners, unit holders and customers and supporting employees.
“The resilience of our people and our supply chain means we continue to stay on top of the strong demand for our New Zealand milk.”
“However, it is concerning to hear about new variants, which are potentially more resistant to vaccines. There is also the ongoing question of whether economies can rebound from the pandemic and then sustain their financial health.”
OPINION: There is zero chance that someone who joined Fonterra as a lobbyist, then served as a general manager of Fonterra's nutrient management programme, and sat on the board of Export NZ, a division of lobbyist group Business New Zealand, doesn't understand that local butter (and milk and cheese) prices are set by the international commodity price.
Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.
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