Fonterra said "strong" global milk production meant it was lowering forecast price it pays farmer-members for milk

Fonterra said "strong" global milk production meant it was lowering forecast price it pays farmer-members for milk

Fonterra has seen its annual earnings fall by more than three-quarters on the back of rising costs, with the world's largest dairy exporter lowering its forecast farmgate milk price for the new financial year.

The New Zealand dairy giant booked net profit after tax of NZ$179m (US$144.3m) for the year to the end of July, down 76% on the previous 12 months. Normalised EBIT dropped 50% to NZ$503m.

High dairy commodity prices pushed up Fonterra's input costs for its consumer-facing businesses. For example, normalised EBIT for the group's combined consumer divisions in Australia and New Zealand fell 78%.

Fonterra also found it difficult to switch production to milk powders with better returns to take advantage of robust commodity prices.

That said, the commodity prices did help turnover, with group revenue hitting a record, growing 19% to NZ$22.3bn.

The farmgate milk price Fonterra paid to its farmer shareholders was NZ$8.40. However, looking to the new financial year, the company said strong milk production worldwide and the impact of Russia's import restrictions on global supplies meant it was lowering its forecast farmgate milk price from NZ$6 to NZ$5.30 per kilogram of milk solids.

"Under the current market conditions, there is further downside risk. However, the forecast reflects expectations that prices will increase in the medium term," chairman John Wilson said.