Fonterra raises its farmgate milk price as demand from China picks up

FILE PHOTO: The Fonterra logo is seen near the Fonterra Te Rapa plant near Hamilton August 6, 2013. REUTERS/Nigel Marple

(Reuters) - Fonterra Co-operative Group Ltd on Thursday raised the price range it pays farmers for milk, as demand increases in China, its top market.

The world’s biggest dairy exporter lifted its farmgate milk price range to between NZ$6.3 and NZ$7.3 per kilogram of milk solids (kgMS), from NZ$5.9-NZ$6.9 per kgMS, implying a midpoint around 6% higher than before.

“Despite the initial impact of COVID-19, we have seen demand for dairy in China recover quickly,” Chief Executive Officer Miles Hurrell said in a statement.

“In particular, demand for Whole Milk Powder, which is a big driver of milk price, has been stronger than expected.”

Recovering demand for dairy and the company’s success in refocusing business back to New Zealand has helped Fonterra return to profit and resume paying dividends to farmers, who make up the majority of its shareholders.

At a midpoint of NZ$6.8 per kgMS, Hurrell said, “more than NZ$10 billion ($6.66 billion) would flow into regional New Zealand.”

However, Fonterra said it was “keeping a close eye” on how the global economic recovery could be affected by new waves of COVID-19 infections and restrictions across Europe.

“With increasing demand and supply, we see the dairy outlook as more balanced, but given there are still a number of risks, we are still recommending our farmers be cautious with their decision making,” Hurrell added.

($1 = 1.5020 New Zealand dollars)

Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Chris Reese and Matthew Lewis