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Drought taxes New Zealand dairy giant Fonterra

September 25, 2013

WELLINGTON, New Zealand (AP) — A drought shrank yearly revenue at New Zealand dairy giant Fonterra, but the company said Wednesday that Chinese demand for milk powder remains robust.

Fonterra is New Zealand’s largest company and a bellwether for the fortunes of the South Pacific nation’s farming-driven economy.

The company announced that in the fiscal year ending July 31, revenue was down 6 percent at 18.6 billion New Zealand dollars ($15.3 billion) after a drought dried fields and lowered milk volumes. Profit before tax was down 3 percent at NZ$1 billion while profit after tax was up 18 percent at NZ$736 million.

Fonterra’s reputation was dented last month when it triggered a global recall of infant formula due to fears that it was contaminated with botulism bacteria. Further testing showed it was likely a false alarm. Any financial fallout from the scare will be reflected in next year’s results.

However, any impact appears to have been short-lived with international dairy prices remaining at elevated levels. As a result, Fonterra said Tuesday it was increasing its forecast payout to farmers by 50 cents to NZ$8.30 per kilogram of milk solids. The company cautioned that dairy prices remain volatile.

Farmers are hoping for a bumper milk season this year after a mild and wet Southern Hemisphere winter provided ideal growth conditions for the grass that cows feed on.

Fonterra is a cooperative owned by 10,500 farmers.

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