Fonterra says China demand holding up despite COVID, growth concerns

Monday, 21 March 2022 02:00 - - {{hitsCtrl.values.hits}}

WELLINGTON (Reuters): Demand for dairy products is holding up in China despite concerns about an economic slowdown and the impact of COVID-19 outbreaks, a senior executive at New Zealand’s Fonterra Co-operative Group Ltd said on Thursday.

Fonterra, the world’s largest dairy exporter, posted a 13% fall in half-year profit after its margins were squeezed by rising input costs and lower milk collections in New Zealand due to bad weather.

Sales margins also took a hit from raw milk prices rising due to constrained supply and strong demand, it said.

Chief Financial Officer Marc Rivers told Reuters that if lockdowns to contain COVID-19 in China, Fonterra’s biggest export market, hurt demand, the co-op could switch its product mix toward consumer goods from the food-service sector.

“It’s early days. We’re live monitoring the situation,” he said, adding a bigger challenge was whether Fonterra would be able to pass on significantly higher wholesale dairy prices, which were squeezing its margins.

“But we’ve not seen that as a problem yet,” said Rivers, who will leave Fonterra at the end of 2022.

Dairy prices fell for the first time this year in the Global Dairy Trade auction last Tuesday, which analysts said was due largely to concerns about Chinese demand. Even after this week’s fall in prices, the Global Dairy Trade price index has risen 18% since the start of 2022.

China this week reported some unexpectedly strong economic data for early 2022, but analysts have cautioned any nascent recovery could be tested by surging COVID-19 cases, a weak property market and an uncertain global recovery.

Fonterra last month lifted its forecast range for what it will pay farmers for milk in the 2021/22 season, passing on the benefit of strong global milk prices.

Fonterra’s net profit after tax for the six months ended Jan. 31 came in at NZ$ 364 million ($ 248.36 million), down from NZ$ 418 million recorded in the year-ago period.

The company’s Greater China earnings before interest and tax fell 20% due largely to the food-service sector, which saw revenue grow 7% but margins contract.

The Auckland-based dairy exporter declared an interim dividend of 5 New Zealand cents per share, the same as last year.