11 Dec 2014

Fonterra focusing on other products

6:48 am on 11 December 2014

Fonterra has been adjusting its product mix to put less reliance on whole milk powder as it waits for global prices for that key commodity to recover from the hammering they have taken.

The continued slide in whole milk powder prices due to an international glut is what has forced the dairy cooperative to slash its forecast milk payout to farmers again from $5.30 to $4.70 per kilo of milk solids.

John Wilson (centre).

John Wilson (centre) says Fonterra has reduced the amount it sells through the global dairy trade auction. Photo: RNZ / Diego Opatowski

Chairman John Wilson said the company was expecting to see those prices recover from about the middle of next year, but in the meantime would put more of its milk into other products.

"The complete opposite of last year, where whole milk powder was the preferred product mix and that had a significant impact on our business. This year it's the reverse, so we're seeing a lot more go into products such as cheese and casein."

Mr Wilson said Fonterra had also reduced the amount of product it was selling through the fortnightly global dairy trade auction because it was getting better prices through other channels.

"Last year, we were well over 30 percent. This year, we anticipate it will be below 30 percent but a lot will depend on how much milk is produced in New Zealand over the coming months. We had a significant increase in milk production last year of 8 percent.

"We're certainly not anticipating that this year. In fact, I think that our milk production will drop away over the summer because it won't be economic for farmers to feed supplements. That will have a big impact, ultimately, on how much is sold through the global dairy trade."

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