Fonterra holds milk price hopes despite EU warning

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Fonterra maintained its farmgate milk price forecast despite a drop of more than 15% in dairy market values, and a warning from peer and business partner FrieslandCampina of a "stagnant" European market.

New Zealand-based Fonterra, the world’s top dairy exporter, held at NZ$6.75 per kilogramme of milk solids its estimate for payouts to its farmers in 2011-12.

The forecast comes despite a continued drop in world dairy prices since the figure was first released in May.

Since then, prices of skimmed milk have fallen by more than 20% at Fonterra’s globalDairyTrade auctions, with wholesale milk for short-term delivery hitting a one-year low at the last event, two weeks ago.

Indeed, Cees ‘t Hart, the chief executive of Dutch dairy giant FrieslandCampina, on Thursday warned that "there is no growth in consumption" in dairy consumption in Europe, the world’s biggest market for products such as cheese and skim milk powder.

Saw it coming

Sir Henry van der Heyden said the co-operative had "largely anticipated" in its payout forecast the fall in dairy prices since May.

"In volatile economic and market conditions, we could face a range of factors that may affect the season’s milk price," Sir Henry said.

"But at this very early stage of the season we see no reason to alter the forecast," he added, while acknowledging the threat to estimates from the revived fears of another global economic downturn.

"We will continue to monitor possible slowing global economic growth that might translate into weaker dairy demand."

Fonterra also kept at $0.40-50 a share its forecast for payments to members from its profits.

‘Stagnation in consumption’

FrieslandCampina’s warning came as it unveiled an 11.8% slide to E210m in operating profits for the first half of the year, held back by higher milk prices paid to farmers, and a limited ability to pass on rises to customers.

"[European] consumers remain extremely susceptible to low prices and product promotion campaigns," Mr ‘t Hart said.

"In Germany in particular the necessary price increases could not be passed on to the market."

The European consumer products division fell to breakeven for the half year, from an operating profit of E57m in the first six months of 2010.

"The main reason for this was the increasing competition resulting from a stagnation in consumption," the co-operative said.

"The increased price of raw milk and other raw materials could not, or could only partially and after a delay, be passed on in the selling price. This put margins under considerable pressure."

Group profits at FrieslandCampina, a partner of Fonterra in the DMV-Fonterra Excipients pharmaceuticals business, fell 18.6% to E127m, on revenues up 9.3% at E4.73m.–3554.html

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