New Zealand dairy giant Fonterra Cooperative has said it achieved a solid operating performance in the first half, helped by good demand in international markets and improved commodity prices.

The company reported pre-tax profit of NZ$52m (US$35.1m) for the six months to 30 November, compared to $9m a year earlier.

In contrast to the same period last year, when Fonterra had a significant inventory surplus, the co-operative said it had begun this season with appropriate stock levels due to an aggressive de-stocking programme last year.

“We began the year more confident that supply could be better matched with demand, leading to improved prices,” said chairman Henry van der Heyden.

“We saw world economic conditions gradually improve and this helped restimulate the market. The growth in consumption coincided with supply constraints caused by lower production over Europe’s summer heat wave and Australian supply being affected by drought.  As a result, we were able to take advantage of the firmer prices for most commodities,” he added.

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By GlobalData

The strength of the New Zealand dollar reduced revenues by more than $650m from the year-ago period, while lower sales volumes also hurt revenue. But these effects were partially offset by stronger ingredients selling prices. Overall, revenues were $5.6bn for the six months to 30 November, compared to $6.0bn a year earlier.

Chief executive Andrew Ferrier said Fonterra was increasing its focus on growing its value-added businesses.

“We are taking a balanced approach here, looking at short-to-medium term opportunities which will deliver us immediate growth and complementing these with investments which we believe will secure us more long-term growth prospects,” Ferrier said.

He cited Fonterra’s negotiations aimed at securing a stake in Chinese dairy company Shijiazhuang Sanlu Group as a longer-term investment initiative.

“China is expected to offer growth opportunities, as growth in dairy consumption is expected to remain well above China’s domestic production capacity.  We have a good track record in the market and achieve good sales there, so our experience makes us confident we can achieve long-term growth through the Sanlu investment if we are successful in our negotiations,” Ferrier added.