Fonterra CEO: Higher dairy prices could slow demand from China

WELLINGTON Tue May 27, 2014 5:51pm EDT

WELLINGTON May 28 (Reuters) - Fonterra, the world's largest dairy exporter, on Wednesday said that a significant rise in global dairy prices could trim demand for milk formula and other dairy products in China, its biggest customer.

After announcing a record high milk payout price to its farmers of NZ$8.40 ($7.17) per kilogram of milk solids for the season ending this month, Fonterra CEO Theo Spierings said that demand in the world's second largest economy may suffer if prices rise much beyond that.

"China could bear NZ$8.00, but if it goes significantly north of NZ$8.00, that's going to be painful because then you see a slowdown in demand," Spierings told Reuters in an interview.

"If you go toward the NZ$9.00 level like where we were this year, that's really high. But if it sat around NZ$8.00, I think we can still drive volume."

Earlier on Wednesday, Fonterra said it expected to pay its shareholder farmers NZ$7.00/kilo for the coming season, 17 percent lower from this year, as increased global dairy production has knocked prices lower from record highs set a year ago. ($1 = 1.1716 New Zealand dollars) (Reporting by Naomi Tajitsu, editing by G Crosse)