Fonterra profits soar despite the global dairy glut

Dairy farmer Leon Doherty in Christchurch, New Zealand. Martin Hunter/Getty Images

The Fonterra Co-operative Group, the world’s biggest dairy exporter, increased net profit after tax by 65% to $NZ834 million ($A806 million) despite a slump in the global dairy market.

The result, reflecting better margins from the cooperative’s move into higher returning products, was on a 9% fall in revenue to $NZ17.2 billion ($A16.6 billion).

The company says the 2015-16 season was incredibly difficult for farmers, their families and rural communities with lower prices paid for milk.

Fonterra expects continuing volatility in the global market.

“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,” says CEO Theo Spierings.

Fonterra will be paying $NZ4.30 for 2016, including $NZ3.90 per kilogram for farmgate milk and a dividend of 40 NZ cents a share.

This chart shows the decline in farmgate prices paid to farmers.

Business Insider chart. Data from Fonterra’s annual report.

Fonterra’s forecast total payout to farmers for 2016-17 is between $NZ5.75 and $NZ5.85

The industry is suffering from a global glut of dairy products caused by weaker demand and overproduction. Slower economic growth in China, a major export market for milk producers, has slowed demand.

Both the New Zealand-based Fonterra and Australian cooperative Murray Goulburn cut farm gate prices, leaving farmers with unexpectedly lower cash payments.

Australia’s competition watchdog, the ACCC (Australian Competition and Consumer Commission), says it is investigating the price cuts.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.