Sales surge offsets Fonterra cost spike

The New Zealand-based dairy co-operative said today that it had offset the spike through higher sales volumes from its ingredients division, an improved return from its branded goods, and an overall reduction in production costs. The results will serve as a further reminder of the growing importance for dairy producers of expanding into higher-value segments like ingredients, as well as achieving greater production efficiency in order to remain competitive within the industry. This issue has become more important in recent months as a dwindling supply of raw dairy supplies and the resulting higher prices continues to put pressure on the industry's margins. In the case of Fonterra, the total cost of goods sold, excluding payouts it makes to supplier-owners, increased by AUS$259m (€166m)to AUS$6.1bn (€3.9bn). Despite the increase, company chairman Henry van der Heyden said that Fonterra needed to continue to aim for improved cost effectiveness in its operations. "Regardless of the current strong commodity market and higher payout forecast, we will continue to drive hard on growing the global competitiveness of Fonterra,"​ he stated. Van der Heyden pointed to the company's investment in improving its domestic supply chain and its further penetration of foreign markets as the key to achieving its growth strategy. "We need to successfully implement our strategy, which means an on-going focus on the strength of the​ New Zealand​ supply chain, coupled with substantial growth in other countries,"​ added. The company said that an improved focus on international markets and its ingredients products was already beginning to show benefits. Both divisions - which formerly operated solely through its ingredients arm - posted a combined rise in sales of 7.3 per cent to Aus$9.9bn (€6.3bn) for the year. This performance was backed by a 5.4 per cent increase to AUS$4bn (€2.5bn) in operating revenue for its branded goods. Fonterra's chief executive officer, Andrew Ferrier, said that the overall strength of the company's operations had allowed for in the increased payout for its suppliers. "The result reflects the benefits of better focus on customers and consumers, a stronger focus on our brands, and the investments we have made in our supply chain and projects to increase manufacturing efficiency and reduce energy consumption,"​ he stated. The payout, which will give Fonterra's suppliers AUS$4.46 (€2.86) per kilogram of milk solids (kg/MS), is up 11 per cent over the previous forecast announced in May. Fonterra is one of the top six dairy companies in the world by turnover, the world's leading exporter of dairy products and controls about a third of international dairy trade.