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Speaker 1: The dairy farmers are happy. The milk price has cracked

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Speaker 1: double digits. Fonterra has raised its forecast farm gate milk

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Speaker 1: price by fifty cents to a mid point of ten dollars.

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Speaker 1: And that is the second rise in less than a month,

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Speaker 1: and the company says it's due to strong demand from

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Speaker 1: China and Southeast Asia. Andrew Murray is Fonterra's chief financial officer.

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Speaker 1: He knows the money, he knows the figures, and he

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Speaker 1: joins right now.

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Speaker 2: Hello Andrew, good evening, How are you good?

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Speaker 1: I would say the farmers are very good too, aren't they.

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Speaker 2: Yeah, Yeah, that's certainly to feedback that we've had early

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Speaker 2: on is yeah, it's very positive from the farmer beef.

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Speaker 1: The company says it's due to strong demand from China

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Speaker 1: and Southeast Asia. Now, please come on. About eighteen months ago,

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Speaker 1: far the GDT, the global dairy trade auction figures were

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Speaker 1: going down and people were saying the Chinese economy appears

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Speaker 1: to be tanking. This is looking bad and there were

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Speaker 1: lots of warnings for farmers. So can you please explain

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Speaker 1: to me how come China, who have still not recovered,

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Speaker 1: are actually driving this growth.

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Speaker 2: Yeah, I think that the core behind it, actually, I

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Speaker 2: would say is is the is the domestic production. And

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Speaker 2: so last year there was quite a lot of domestic

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Speaker 2: production in China that got turned into milk powder, and

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Speaker 2: so there was a lot of inventory around that has

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Speaker 2: been exhausted. They've rebalanced their heads domestically within China and

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Speaker 2: so we're seeing that demand come back pretty stronger. And

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Speaker 2: then the other side, of course, is just that you know,

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Speaker 2: US production is very flat, European production is down, so

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Speaker 2: the demand from imports is pretty good from our perspective,

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Speaker 2: and we've had a strong start to the season as well. Well.

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Speaker 1: There, this is good news. What about Southeast Asia? What

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Speaker 1: would win?

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Speaker 2: So well there, Oh, look, it's actually pretty across the board,

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Speaker 2: to be honest, there's nothing specific. It's it's in line

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Speaker 2: with how it's been for yeah, at least the past

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Speaker 2: twelve to eighteen months. So it continues to be a

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Speaker 2: strong market for us. You'll see that, you know, if

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Speaker 2: you if you look a little bit into GDT, you'll

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Speaker 2: see China is definitely stronger in the last in the

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Speaker 2: last few options. So as we get as we really

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Speaker 2: push up that, you know, the milk price fee does

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Speaker 2: tend to bond off a little bit. They don't tend

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Speaker 2: to be quite as much in terms of high prices

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Speaker 2: as the chain of bios do. And we're seeing that

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Speaker 2: play out a little bit there.

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Speaker 1: Okay, it's not all good news, butter what's wrong with better?

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Speaker 1: There's some five point two percent? And the other one

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Speaker 1: is Mozzarella, which has been going down a big time.

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Speaker 1: It's on four point five to one auction and six

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Speaker 1: point six last night. What's happening there?

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Speaker 2: Yeah, Look, we've we've to be honest, we've been waiting

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Speaker 2: for a little bit of that reversion to happen. So

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Speaker 2: you know that that's the stream returns turning back a

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Speaker 2: little bit normal. So certainly when you look at that

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Speaker 2: again compared to what's happening in Europe and US, we've

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Speaker 2: been expecting them to come off a little bit. So yeah,

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Speaker 2: that's something that we've been waiting on, probably for a

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Speaker 2: few months. Done.

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Speaker 1: Well, you're getting rid of you know, your value added brands,

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Speaker 1: you know, the mainland and the anchor and stuff like that.

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Speaker 1: Would there ever be a day where you just said

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Speaker 1: to Mozzarella, I'm sorry, your day is done.

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Speaker 2: Oh yeah, I don't know if we're in that space.

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Speaker 1: Okay, that's well, that's good news. And here's the other

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Speaker 1: thing that I find interesting. You going to raise the

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Speaker 1: fangate price, but your profit for the first quarter is

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Speaker 1: actually down like thirty percent. So that's two hundred and

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Speaker 1: sixty three down from three hundred and forty six million.

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Speaker 1: So how come you're paying your you know, your shareholders

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Speaker 1: more and yet your profit's gone down.

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Speaker 2: Yeah. Look, I think the key in this one is,

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Speaker 2: you know, our profit was still really strong for the quarter.

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Speaker 2: If you're compared to that quarter last year, we've probably

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Speaker 2: had the milk price that was, you know, over two

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Speaker 2: dollars less than it is now, and so obviously you

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Speaker 2: know that we'll see that come through in the actual

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Speaker 2: profit result. But still a very strong quarter for us.

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Speaker 2: And you see, actually from a margin perspective, better than

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Speaker 2: than two four last year. So we actually feel really

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Speaker 2: good about the quarter numbers that they're in a good space.

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Speaker 2: But you know that the key is that we've got

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Speaker 2: a very strong balance sheep with what hard over the

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Speaker 2: last few years to get ourselves into really good shape.

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Speaker 2: You know, if I look at these changes, you know,

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Speaker 2: the milk price going up, et cetera. I mean, that's

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Speaker 2: that's you know, a good few hundred million. That's that's

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Speaker 2: going into the farmer's pockets in January above what we expected.

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Speaker 2: But the strength of the balance sheet is really is

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Speaker 2: to do that true.

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Speaker 1: And you also have costs as you change your business model,

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Speaker 1: so that might affect things in the short to medium.

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Speaker 2: Oh yeah, look, we've got that well planned. And you

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Speaker 2: know we've reformed the guidance for the year in that

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Speaker 2: forty to sixty Saints push year arrange. That's that's largely

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Speaker 2: in language last year. So yeah, we're feeling all key

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Speaker 2: in terms of hope. We're cleaning out for the rest

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Speaker 2: of the year.

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Speaker 1: All we have to say now is congratulations, are a

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Speaker 1: good result and long may they continue.

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Speaker 2: Yes, indeed, so thank you.

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Speaker 1: That is Andrew Murray. He is Fonterra's chief financial officer.

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