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Fonterra posts revenue jump; cuts forecast payout

September 24, 2014

WELLINGTON, New Zealand (AP) — New Zealand dairy giant Fonterra posted record revenue Wednesday but signaled a tougher year ahead for farmers by cutting its projected payout to them.

The cut reflects a drop since February of more than 40 percent in wholesale prices for dairy products. In a presentation Wednesday, Fonterra said the drop was caused by increased production in Europe and the U.S. coupled with slowing growth in demand from China.

In its annual results, Fonterra announced revenue rose 19 percent to 22.3 billion New Zealand dollars ($18 billion) in the year ending July when compared to the previous year. After-tax profit, however, was down 76 percent to NZ$179 million.

Last year the company paid farmers a record NZ$8.40 per kilogram of milk solids, but this year projects it will pay them just NZ$5.30. That’s down from an earlier forecast of NZ$6.

Fonterra is the world’s largest exporter of dairy products and New Zealand’s biggest company, a cooperative owned by 10,500 farmers.

Fonterra Chairman John Wilson said in a statement the latest forecast reflects market volatility due to global geopolitical and economic uncertainty as well as an imbalance in supply and demand. He said the fundamentals for the industry remain strong.

The company blamed its lower profit on higher costs and tighter margins.

The New Zealand dollar fell immediately after the announcement but recovered to trade up 0.2 percent at $0.807.

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