Fonterra financials: Profits up, farmer payments down

A $1.47 billion cut to Kiwi farmers’ milk prices and higher global returns helped Fonterra lift its profits by 170 per cent in 2022-23.

New Zealand farmers are being paid below the cost of production, after Fonterra slashed farmgate price forecasts.

New Zealand dairy giant Fonterra lifted its 2022-23 earnings to $NZ24.58 billion, up $NZ2.68 billion on last 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 cut in farmgate milk prices, which are regulated, in combination with higher international cheese and caseinate prices helped Fonterra lift its after-tax profit from $NZ583m in 2021-22 to $1.577bn in the 12 months to July 31 this year.

Fonterra NZ chief executive Miles Hurrell said: “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 (Auction) prices drop, with the average whole milk powder price down 16 per cent 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 cash flow.

“However, we’re pleased to be announcing a strong full year dividend of 50 cents per share – comprising an interim dividend of 10 cents per share and a final dividend of 40 cents per share.”

In addition, the co-op returned tax-free 50 cents per share in August, following the $NZ260m divestment of is Chilean investment in Soprole, giving a final cash payout to farmers of $9.22 per share backed kgMS.

Fonterra’s low NZ farmgate milk price of $NZ6.75, or $A6.21, sits in stark contrast to the $9.20 or more Australian farmers are being paid.

The price gap has already led to a surge in New Zealand imports.

Meanwhile the Australian arm of the business 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 $NZ27m ($AU25m) relating to the class action settlement agreement with Fonterra Australia milk suppliers, dating back to the 2015-2016 season.

2023-24 OUTLOOK 

Fonterra has slashed its 2023-24 forecast farmgate milk price to a range of $NZ6.00 – $NZ7.50 per kgMS, with a midpoint of $NZ6.75, in response to reduced demand for whole milk powder from key importing regions.

WMP prices have fallen from more than $US4000 in the middle of last year to $US2800 today.

Mr Hurrell said: “We are watching market dynamics closely and there are indications demand for New Zealand milk powders will start to return from early 2024.

“Demand for other products, including food service and our value-added ingredients, continues to be robust.

“Our FY24 forecast earnings range for continuing operations is 45-60 cents per share. While the favourable price relativities we’ve experienced across FY23 have reduced from their peaks, we are forecasting improved margins across our consumer and food service channels for FY24.

“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.

FONTERRA GROUP PERFORMANCE AT A GLANCE

Full 2022-23 reported earnings of 95 cents per share, up from 36 cents per share last financial year.

Reported profit after tax of $1.6bn, up 170 per cent.

Return on capital of 12.4 per cent, up from 6.8 per cent.

Final 2022-23 season farmgate milk price of $8.22 per kgMS.

Full year dividend of 50 cents per share, including interim dividend of 10 cents per share.

Additional tax-free 50 cents per share capital return following divestment of Soprole.

Full year milk collections of 1480 million kgMS.

Forecast 2023-24 season farmgate milk price range of $6.00-$7.50 per kgMS, with a midpoint of $6.75.

Forecast 2023-24 earnings guidance range of 45-60 cents per share.

FONTERRA AUSTRALIA AT A GLANCE

Fonterra Australia's 2022-23 performance – milk collections and financials in New Zealand dollars.