The turbulent Australasian milk market has taken its toll on National Foods, which reported a 6% drop in profits on Friday.

The fall in net profit to A$45.1m (US$23.6m) was blamed by managing director Max Ould on the deregulation of the Australian milk market in July 2000, which, he said, had led to substantial price decline in the supermarkets.

But perhaps the worst is over for National Foods in the milk market with the largest supermarket chain Woolworths agreeing to a 5c a litre price rise in September.

There is also speculation among analysts that New Zealand’s milk conglomerate, the Fonterra Co-operative Group, will merge its Australian assets. This includes an 18.3% stake in National Foods, 25% of Bonlac Foods and 80% of Peters and Brownes which could provide substantial cost savings.

The Australian stockmarket has responded well to National Foods after it wiped about 30% off the value of the company in the year following deregulation. National Foods gained 3c in a weak market to close at A$2.23 on Friday and A$2.27 on Monday.

By David Robertson, correspondent

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