New Zealand’s largest dairy company, the Fonterra Co-operative Group, has reported a profit of NZ$1.6 billion – up 170% – for the financial year to July 31, 2023.
The global dairy nutrition co-op, owned by 9,000 farmers, also reported a final 2022/23 season farmgate milk price of NZ$8.22 per kilograms of milk solids (kgMS).
It also reported full-year milk collections of 1,480 million kgMS .
According to Fonterra’s chief executive, Miles Hurrell, the co-op delivered strong earnings and “made progress” against its key strategic initiatives for the full year (FY23) 2023.
However, he did acknowledge that this was against the backdrop of a farmgate milk price drop across the season.
“Our 2022/23 season farmgate milk price was impacted by reduced demand for whole milk powder from key importing regions.
“As the financial year progressed, we saw Global Dairy Trade prices drop, with the average whole milk powder price down 16% compared to last season.
“We recognise the impact the reduced farmgate milk price has on farmers’ businesses and have utilised our strong balance sheet to introduce a new advance-rate schedule guideline to assist on-farm cashflow,” Hurrell added.
The co-op announced a dividend of 50c/share and gave a final cash pay-out to farmers of NZ$9.22 per share backed kgMS.
Hurrell added: “Our FY23 performance demonstrates that we are focusing on the right strategic priorities.
“This said, we are aware that there are challenging conditions on the ground for many of our farmers.”
The latest set of financial results show that Fonterra’s reported profit after tax was NZ$1,577 million – up NZ$994 million.
The co-op also reported a return on capital for the last 12 months of 12.4%, up from 6.8% in the comparable period.
Hurrell said there were a number of “key drivers” behind this including including favourable margins in its ingredients division, in particular its cheese and protein portfolios.
Fonterra’s chief executive also highlighted in its latest set of annual accounts that the co-op continues to work towards being a “leader in sustainability”.
“We have stepped up our emissions reduction goal for the operational side of our business, introducing a target of a 50% absolute reduction in scope 1 and 2 emissions by 2030, from a 2018 baseline, an increase on our previous target of a 30% reduction by 2030.
“We have held discussions with our farmers on why we need to introduce a scope 3, or on-farm emissions target, and plan to announce our target before the end of calendar year 2023,” he added.
Market dynamics
Hurrell also warned that Fonterra is “watching market dynamics closely” and said there are indications demand for New Zealand milk powders will start to return from early 2024.
The current forecast for 2023/24 is a farmgate milk price range of NZ$6.00 – NZ$7.50 per kgMS, with a midpoint of NZ$6.75, which he said “reflects reduced demand for whole milk powder from key importing regions”.
“We acknowledge that across the year, farmers will continue to feel the pressure from high input costs and a reduced farmgate milk price.
“We’ll continue to do all that we can to support farmers through this challenging period,” he said.