Fonterra Australia says China’s dairy demand shows ‘signs of life’

China’s dairy demand is showing ‘signs of life’, one of Australia’s top dairy executives says. Here’s what that means for Australia.

China’s demand for dairy is showing ‘signs of life’ after putting a cap on its cravings for cream, one of Australia’s top dairy executives says.

Fonterra Australia managing director Rene Dedoncker said recent international trade showed demand in China for dairy was moving in the right direction.

Last month, the headline figure on Global Dairy Trade index rose 4.6 per cent from $US2875 ($A4555) to $US2957 ($A4583) a tonne.

“There are signals. There’s certainly signs of life behind borders there,” Mr Dedoncker said.

“In approximately three to six months, we’ll start to see some demand moving north again.

“But these are difficult things to predict and what we cannot run a business on is hope; you have to run a business on the reality of today.

“If we start to see China demand move, it’s good for global commodity prices and it will have a halo. We can cross our fingers but we don’t run our business on crossed fingers.”

Rene Dedoncker is the managing director of Fonterra Australia.

An influx of New Zealand butter into Australian supermarkets is both a win for Fonterra’s home base but a threat to profits for its Australian arm.

Mr Dedoncker said Australian consumers have a high regard for brands such as Western Star, which will help domestic dairy in somewhat challenging conditions.

“Food service is a wonderful business for us,” he said.

“We’ve got a natural edge, where we work with chefs, we’ve got our products in supermarkets as well — so we know that trade very well.

“If you look at net imports, say for example of cheddar, you’re seeing an increase landing in (Australia). There’s no doubt that’s driven by the economics and offshore production being cheaper than here.

“So you will see that throughout the year. So that’s why you need strength of brands, consumers loving Western Star and Perfect Italiano. That’s where we’ve been able to build a bit of a fortress.”

Last month, Fonterra lifted its 2022-23 earnings to $NZ24.58 billion, up $NZ2.68 billion in the 2021-22 financial year.

But at the same time, Kiwi farmers milk price was cut from $NZ13.77bn in 2021-22 to $NZ12.3bn in 2022-23, according to Fonterra’s financials released this morning.

The Australian arm of Fonterra lifted its revenue from $NZ2.09 billion last year to $NZ2.531 billion, while maintaining its 17 per cent of the nation’s shrinking 8.1 billion litre milk pool.

The company reported its EBIT was down 29 per cent on last year in Australia, dropping from $106m to $75m.

The company reported its Australian operating expenses were affected by one-off costs of $NZ27m ($A25m) relating to the class action settlement agreement with Fonterra Australia milk suppliers, dating back to the 2015-2016 season.