Fonterra lost ground in New Zealand’s milk market in the latest of a series of setbacks to the world’s biggest dairy exporter – although its smaller Australian operation showed hefty growth in market share.
Auckland-based Fonterra reported a 5% drop, year on year, in New Zealand milk production in January, as dry weather continued to sap output in some regions.
“Although rain in late December and early January helped in some regions, other regions were heavily impacted by soil moisture and pasture growth challenges caused by difficult weather conditions,” said the co-operative, which is owned by some 10,500 farmers.
“This has impacted overall collection volumes throughout New Zealand.”
‘Very low collections’
However, Fonterra’s collections of milk in New Zealand fell even further in January, by 8% to 158m kilogrammes of milk solids, signalling erosion of its hefty market share.
The fall was “largely due to the difficult weather conditions which impacted soil moisture and pasture quality,” the co-operative said, reporting a particular decline, of 11%, in collections in New Zealand’s North Island.
“After a dry, hot period through December and early January, [North Island] milk collections were very low at the start of January.
“While collections recovered part way through the month due to heavy rain, the recovery was not enough to bring the volumes back to last season’s levels.”
The data - while offering a potential support to world dairy prices, given New Zealand’s status as the top exporting country – come at a tricky time for Fonterra, which is under a cloud over the poor performance of Beingmate, the Chinese infant formula maker in which it bought a 70% stake three years ago.
Beingmate, in whose performance Fonterra has said it is “extremely disappointed”, last month reported a second annual loss, this time of 964m renminbi, while seeing its Chinese market share fall to 2.5%, from 9% in 2013.
Fonterra - which termed as a “game changer” its 2015 Beingmate deal, which saw it pay $553m for a minority stake - has already seen one Chinese investment go awry, when the Sanlu company it purchased a 43% stake emerged in 2008 at the centre of the infamous melamine milk contamination scandal.
Fonterra has also attracted controversy over an injunction it has gained against Leonie Guiney, over claims that the former co-operative director, w who was on the board until November, had breached contract and confidence.
Media have also been barred from using information provided by Ms Guiney.
Meanwhile, GlobalDairyTrade, the dairy auction site owned by Fonterra, although operated independently, has unveiled an investigation into trading in the last event, on Tuesday, in skim milk powder ultra high temperature (SMP UHT) product.
“The review has been initiated in consultation with the GDT events oversight board and will investigate the observed differences in winning prices for the SMP UHT product, relative to the SMP medium heat product in the relevant contract periods.”
The review will cover trading in the April, May and June contracts, gains in which drove a 5.5% rise, to an eight-month high of $2,051 a tonne, in average skim milk powder prices at GlobalDairyTrade.
Prices of April SMP UHT, of which Fonterra was the only seller at the auction, soared 45%, while values of May Fonterra product rose to $3,220 a tonne – taking to 69% their premium over the medium heat alternative.
By contrast, the European Union on Thursday reported skim milk powder prices at E136 per 100 kilogrammes as of last week, down E1 week on week to the lowest on data going back the start of 2001.
Fonterra also reported a surge in milk collections in Australia in January, of 32% to 14 kilogrammes of milk solids, “driven by increased market share and favourable seasonal conditions across milk collection regions”.
Overall milk output in Australia, where troubled Murray Goulburn has seen a number of farmers depart for rival processors, rose by 4% year on year in January.