Fonterra (FSF), the giant NZ dairy empire, has given a masterclass to other dairy groups on how to handle a price crisis and recover from it.
Fonterra has spent three years cutting prices and payouts to farmer owners, cutting staff numbers and slashed operating costs and in the end, caught the early stages of a rebound in prices this year that saw it report a 65% lift in earnings for 2015-16 to $NZ834 million.
Fonterra said Thursday it would be paying its shareholder farmers a total of $NZ4.30 a kilo of milksolids for the 2016 season, which was made up of a farmgate milk price of $3.90 per kilogram of milksolids (kg MS) and a dividend of 40 cents a share.
On Wednesday it lifted its 2017 price target to $NZ5.25 a kilo of milksolids (plus the dividend which could be between 50 and 60 NZ cents, for a total at the moment of $NZ5.75 to $NZ5.85). The surge in profit came despite a 9% drop in revenue for the year to $NZ17.2 billion.
The company said Thursday the result for the year ended July 31 reflected a stronger business “despite ongoing challenges in global dairy markets.”
Chairman John Wilson said the season had been incredibly difficult for farmers and rural communities.
But he said Fonterra’s business strategy was working well.
"We continued with the significant and necessary changes we began in the business over three years ago to support our strategy and its priorities, and worked hard to return every possible cent of value back to our farmers.
"We are moving more milk into higher-returning consumer and food service products while securing sustainable ingredients margins over the GlobalDairyTrade benchmarks, especially through speciality ingredients and service offerings."
And Fonterra CEO, Theo Spierings said the results showed Fonterra was doing what it said it would do.
“Our results show how our strategy is creating value for our shareholders. We are driving more volume into higher value products, and we are achieving results with increasing efficiency. We will continue to build on this strong platform to keep improving and delivering results to our farmers."
On Wednesday, Fonterra hiked its forecast farmgate milk price to $NZ5.25/kg MS.
This meant about an extra $78,980 for the average New Zealand dairy farmer, and nearly $NZ1 billion nationally.
The rise brought the price to 20c above the break-even of $NZ5.05 calculated by DairyNZ.
Mr Wilson said on Thursday the higher forecast reflected the improvements the business would continue to make.
"It is still early in the season, and we expect continuing volatility as reflected in price improvements in recent GDT auctions.
"Current global milk prices remain at unrealistically low levels, but as the signs in the market improve, we are very strongly positioned to build on a good result in the year to come."
