Aging inventories put pressure on milk supply.

Fonterra is confident that demand from its all-important China market is improving despite import demand being hit by its prioritisation of domestic milk supply.

Speaking at the announcement of the co-operative’s annual result for the 2023-2024 season, Fonterra chair Peter McBride said it felt like Fonterra was on the up in China, particularly in the past few months.

There is downward pressure on the Chinese milk supply and some potentially aged inventory, particularly in WMP.

“We’re feeling a lot better about demand from China.”

Chief executive Miles Hurrell said there had been lots of discussions on how it could boost its presence in China.

Fonterra’s foodservice business is the “jewel in the crown” in that market and is growing despite its economy being in a tough position.

“We’re seeing most sectors really entrenching across China – except the food category, we’re still seeing that food category grow.

“Our model in China has been successful and I’m confident it will be going forward as well.”

Hurrell said the surplus of domestically produced milk had suppressed the milk price over the past few years because it reduced demand for dairy powder imports.

“We’re seeing the end of that, we’re starting to see those stocks start to move out now both in the domestic market and also exported to other countries.”

Chinese milk production has also been falling since the price local farmers were paid fell below the cost of production. Farmers are also culling their animals.

“We believe we’re through the worst of that and that’s been reflected in the last few GDTs where there’s been some good demand comeback.”

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