Fonterra milks $807 million profit

UPDATE 2.51pm: Dairy farmer representative Adam Jenkins said the company’s strong result was overshadowed by lost trust. 

“We understand it shows stability,” he said. “But it doesn’t take away from the disappointing price cut that seriously affected farming businesses right across Victoria.” 

The United Dairyfarmers of Victoria president said actions were stronger than words. 

“We understand that the profit doesn’t go to New Zealand farmers either,” Mr Jenkins said. “But the trust among our farmers in Victoria really needs to be rebuilt.”

He said the need to return to profitability didn’t justify the decision to cut the milk price of farmers.

“It was pretty poorly thought out,” he said.

“To have a growth strategy for the people you’ve cut off at the knees raises some serious questions.”

Mr Jenkins advised Fonterra – if they were serious about Australian business – to create their own Australian story and rebuild trust. 

“The price of milk is the price and we can’t get away from the market,” he said.

“But to do what they’ve done while trying to restore confidence is an interesting strategy.”

UPDATE 1.26pm: Fonterra supplier Glen Dalton said the profit was positive for dairy farmers in the south-west. 

The Nirranda dairy farmer said it showed the company was getting the business structure right in Australian markets, giving farmers more confidence in the industry and the processor’s stability into the future. 

“We’ll still have ups and downs,” he said. “But there’ll be something more stable to ride out the lows a bit better.”

Mr Dalton said he never thought he’d agree with the suppliers “ever again”. 

“I was one of the most angry people when they did what they did,” he said. “I still believe it was unethical and wrong… but I would rather them be a little cautious to make sure there’s not a fault rise in commodities.”

He said until there was a secure change in the market and Fonterra could step up, he now agreed with what they were doing. 

“We’d love to be getting paid more for our milk but most of us have changed our business model to compensate for the downturn in the market,” he said.

“I think we can ride it out.”

UPDATE 12.08pm: South-west dairy farmers say they are disappointed by Fonterra’s profit announcement. 

The clawbacks made in May by the processing giant put the region’s suppliers through considerable financial hurt. An outraged industry claimed the move was unethical as many who calve in Autumn were forced to milk for no pay. 

Simpson supplier Shawn Beard said he and others were now shocked and angered by the news with questions left unanswered. 

“They tell us they're in a deficit the last three years but all of a sudden they’ve made a massive profit,” he said.

“It does hurt.”

Mr Beard said the company’s core business was in its returns, making “as much profit as possible for shareholders”.

“In Australia they don’t pay us as much respect because it’s not their core business,” he said. 

He said the upcoming supplier meetings would be “interesting”.

EARLIER: Fonterra has announced net profit of $NZ834 million – $A807 million – for the 2015/16 financial year. 

The annual report released on Thursday highlighted a 65 per cent increase on the previous year. 

Company officials say the results reflect “a stronger business despite ongoing challenges in global dairy markets”.

Fonterra Australia announced an opening farmgate milk price of $4.75 per kilogram of milk solids for its 2016-17 season after cutting the price two months before the season’s close. 

Chairman John Wilson said the 2015/16 season had been “incredibly difficult” for farmers, their families and rural communities.

“We have done what we can to support our farmers with the Co-operative Support Loan, and early payment of dividends,” he said. 

“Through increased earnings and continuing financial discipline we have increased the return on capital and strengthened our balance sheet by significantly reducing debt (less $NZ1.6 billion).”

He said the company had become stronger operationally, financially and in mindset with “a clear sense of direction and a structure”.

Chief executive Theo Spierings said increased volumes of milk sold at higher value was at the heart of its strategy. 

“For our farmers, the promise is that we will make the most of their milk,” he said. 

“We’re keeping that promise.”

Mirroring Murray Goulburn’s sudden milk-price cut in May, Fonterra dropped from an average of $5.60/kgMS to $5. The processor then cut the price to $1.91 for the final two months of the season in order to claw back 12 months of over-payment.

Those that calved in Autumn – most south-west farmers – had the biggest production in May and June and received far heavier losses than some as a result. Fonterra then responded to supplier outcry and raised the price to to $2.50/kg for the July/August milk solid supplies based on May/June volumes to compensate. The processor said it would lower the base price for all milk solids by 19 cents the following year to compensate.

More to come...

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