Dive Brief:
- Fonterra, the largest company in New Zealand, said it expects to cut the amount it pays to farmers for milk by 11.66%, a reduction so substantial it will yank some $4 billion from the New Zealand economy.
- Fonterra, the world's largest dairy exporter, said the decision comes amid a serious deterioration in global milk prices. In China, the co-op's largest market, prices have fallen 45% since February.
- The payment cut was announced as Fonterra reported a 76% decline in net income for the fiscal year ended July 31.
Dive Insight:
The most recent fiscal year has been a wildly difficult one for Fonterra. The New Zealand dairy co-op spent the entire time trying to recover from the false-alarm recalls of baby formula across Asia in August after Fonterra mistakenly warned of contaminated milk.
So as bad as the recent earnings may be, it's worth noting that things could have been worse. For awhile there it seemed unlikely the co-op could survive the scandal. Now there are even reasons to be optimistic. The co-op seems to be making headway rapidly ... most importantly by investing a half billion dollars take on a new partner in China.