Fonterra Stops Dairy Prices From Heading North Amid Waning Consumer Confidence

Amid upward-spiralling prices, New Zealand dairy cooperative Fonterra announced that it will freeze the price of wholesale domestic milk charged to supermarkets and retailers throughout 2011 in a bid to keep a lid on increasing retail prices. At the other end of the milk value chain, Fonterra has raised its forecast payout for the 2010/11 season to NZD7.9-8.0/kg (US$5.9-6.0/kg) from the 2009/10 season payout of NZD6.7/kg (US$5.0/kg). These initiatives are good for the New Zealand consumer and retailers, but come at the expense of Fonterra's margin growth. Nonetheless, given that Fonterra generates the bulk of its revenues from overseas markets, the aforementioned initiatives should not bear a significant impact on the company's bottom line, in our view.

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