New Zealand dairy exporter Fonterra Co-operative Group Ltd is cutting jobs in an effort to shore up its cash flows as a slump in global dairy demand, particularly from No. 1 buyer China, threatens to snuff out the country’s “white gold rush.”
Dairy prices have more than halved from record highs scaled in 2013, with Chinese buying dropping off dramatically after the world’s second-biggest economy built up excess supplies of milk powder last year just as the economy began to slow.
Fonterra has dominated the commodity milk powder sector for years and had been rapidly expanding its business in China.
Photo: Reuters
Profits have been falling for nearly two years in the face of volatile dairy prices, which sank to a 12-and-a-half-year low at the latest global auction on Wednesday.
As a result, Fonterra yesterday said that it would cut more than 500 of its 16,000-strong global workforce, adding that more redundancies were likely as it reviews its operations.
New Zealand’s dairy exports to China have tumbled 69 percent since the start of the year compared with last year, official data shows, whittling Beijing’s share of the country’s total dairy shipments to roughly 16 percent, from 37 percent last year.
At the same time, a ban by Russia on foreign dairy products, imposed in response to sanctions slapped on the country over its role in the Ukraine conflict, has removed a major buyer of butter and other milk products.
Meanwhile, supply has ramped up as farmers in New Zealand, Europe and the US have set up dairy farms in hopes of cashing in on a doubling in dairy prices between 2009 and 2013.
Production in New Zealand, the world’s biggest dairy exporter, has reached record highs.
Industry sources say Chinese processors are still working through stockpiles of imported milk powder, prized over domestic offerings due to past safety scares. That has kept Chinese buyers out of the market since the start of the year.
Analysts see the risk of prices falling further, with demand unlikely to pick up soon as Chinese processors work through their existing stocks.
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