September 30, 2011

Fonterra bothered by milk price issue

Fonterra is bothered by issues that fresh milk is too expensive in New Zealand, Fonterra Cooperative Group's new chief executive Theo Spierings said Thursday (Sep 29).

The price of fresh milk has become a political issue, with the parliament's commerce select committee conducting an inquiry and a separate inter-departmental officials group reviewing the raw milk regulations and Fonterra's enabling legislation.

Spierings, who has been in the job four days, said he did a tour of retailers last weekend to check prices of dairy products available to consumers. He said, "What you do see is a wide assortment and competition in the offerings. It is a normal retail scene. But the perception is the price is too high and perception is reality."

Fonterra needs to take the issue seriously because it needs to ensure consumption continues to grow rather than risking decline.

The briefing comes a week after Fonterra reported record sales and profit, and its biggest-ever farmer payout. Milk production and exports also hit record levels.

The company reiterated its forecast for its payout to decline in the 2012 season as global economic growth falters and Northern Hemisphere producers increase output. Spierings said the long-term outlook for dairy product demand is bullish. Global demand is forecast to grow by 160 billion litres by 2020 while New Zealand's production is expected to grow by five billion litres.

Long term, demand is definitely outpacing supply, he said. "If short-term there a deep recession, the second in three to four years, that could have an impact like it did in 2009. You could see commodity prices coming down for a short while."