In fact, its consumer business in New Zealand is “struggling,” with low margins and profit down more than 80%.
Grocery food prices were up 6.4% in April, with increases across all the food categories measured by Stats NZ. Fruit and vegetables were up 9.4%, beef mince up 13%, cheese up 18%, and milk up 8.5%.
“Food inflation is really biting into the purchasing power of consumers,” said Fonterra chief executive Miles Hurrell.
“That’s not lost on us. Dairy is certainly part of that mix, as are a lot of other staples, whether it be meat or fruit or vegetables, which are also in a similar situation.”
Hurrell said the retail price in New Zealand was set by supermarkets, and not something Fonterra was involved in.
The Government announced on Monday that it’s looking at options to generate more competition in the supermarket sector in response to the Commerce Commission’s review which found that the supermarket giants could be making $430 million a year in excess profits.
Hurrell said Fonterra’s local consumer business was “doing it very tough”.
Pre-tax profit at Fonterra Brands NZ, the company’s New Zealand consumer business, fell more than 80% in the nine months to April 30 while volumes remained unchanged. That’s a bigger drop than the wider Fonterra group where pre-tax profit fell 14%.
“When you look at all our businesses globally, our consumer business in New Zealand is actually one that’s very much doing it tough, suggesting that the margins are low comparative to other markets,” Hurrell said.
The dairy co-operative has to pay farmers a regulated price for their milk, which is set by international markets, and those prices have surged to record levels this year. While high farmgate milk prices are good for dairy farmers and the wider economy, they hurt the profitability of processing companies like Fonterra if they can’t pass on those higher costs to the dairy products they produce.
“Our New Zealand business is one of the ones struggling, which does reflect that the margins in our New Zealand market are very much at the lower end,” Hurrell said.
“We acknowledge and recognise that the higher cost of living is starting to bite across the board and we recognise the important role that dairy plays in the New Zealand diet,” he said.
Annual inflation is running at 6.9%, the highest level in more than 30 years and is hitting consumers in the pocket with higher costs for food, transport and mortgages.
“The cost of living has increased across the board,” Hurrell said. “We recognise that consumers will be doing it tough.”
The co-operative supported the underprivileged through the KickStart Breakfast programme which served more than 180,000 breakfasts at schools each week, and it also donated to the NZ Food Network, a food charity that stores and re-distributes large volumes of surplus and donated food.
