Fonterra sticks by improved milk price forecast in trading update

By Guy Montague-Jones

- Last updated on GMT

Related tags: New zealand, International trade

Fonterra has claimed that ingredients prices are recovering and market confidence is returning as a group of US senators accuse the New Zealand-based co-op of holding a virtual monopoly of key internationally traded dairy commodities.

For the six months ending 31 January, Fonterra reported a 3.7 per cent slide in revenue to NZ$7.7bn. The dairy co-op attributed the drop in revenue to lower average selling prices but insisted that dairy ingredients prices were recovering globally.

Milk prices

On the back of a strong recovery last autumn, the Board increased its forecast milk price in November for the year ending in July 2010 to NZ$5.70 per kilogram of milk solid, from an opening forecast of NZ$4.10.

Fonterra is standing by this revised forecast but warned that there is the possibility of more volatility. “There is an element of uncertainty as to how supply and demand factors will influence prices,”​ said Fonterra CEO Andrew Ferrier.

The New Zealand co-op is posting its financial results ahead of international trade talks on a Trans-Pacific Partnership (TPP) in which the business and its position in the global market may figure on the agenda.

Last week a bipartisan group of 30 US senators including former presidential candidate John Kerry accused the New Zealand dairy industry of operating “anti-competitive practices”.

US lobbying

In a letter to US trade representative Ron Kirk, they invited the Obama administration to consider the damage free trade with New Zealand could do to US dairy farmers and processors.

The senators warned that US dairy producers stand to lose $20bn over ten years if US restrictions on dairy exports from New Zealand are fully phased out.

The letter said: “New Zealand’s dairy industry is dominated by one company that operates as a virtual monopoly in controlling more than 90 percent of the country’ milk production and approximately 40 percent of trade in key internationally traded dairy commodities.

“In light of this market power, the Administration should consider whether genuine competition is possible as it proceeds with the TPP.”

In an interview on national radio New Zealand Trade Minister Tim Groser dismissed the accusations in the letter as “palpable nonsense”. Groser has been quoted in the New Zealand media insisting that Fonterra actively competes in international markets and without the subsidies that US dairy farmers benefit from.

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