Fonterra undeterred by earnings hit

Fonterra, the world's largest dairy exporter, on Wednesday said a steep hit to its first-half earnings won't stop it from marketing more of its own-brand milk products in China and expanding its food services business in the fast-growing market.

The New Zealand dairy co-operative on Wednesday reported a 41 percent fall in first-half earnings after higher input costs from soaring global dairy prices and a lack of capacity to process record-high milk volumes into higher-yielding products hit its margins.

But the farmer-owned co-operative is pushing on with plans to capitalize on increasing dairy demand from China and other countries, where growing middle classes are developing a voracious appetite for cheese, milk formula and other products.

Fonterra has the cash to fund its expansion plans in China after it raised 1.25 billion yuan ($201.53 million) in five-year "dim sum" bonds in January.

In an interview with Reuters, Fonterra CEO Theo Spierings said plans to build an ultra heat treated (UHT) milk processing plant in China, which would be its first manufacturing plant in the company's largest export market, would likely be announced in 2014 or 2015.

"There're definitely plans to go into UHT in China because that's the way forward. Those plans you will see announced and coming to the table in the next financial year," he said.

Fonterra collected roughly 12 billion liters of milk from its farmers in the six months to January 31, about 60 percent of which was processed into milk powder, mainly for wholesale export.

Much of this goes to China to form the base of infant milk formula.

The firm has been expanding its presence in the consumer brands and food services space, where it can earn fatter margins. Fonterra entered the Chinese market last year with Anchor-branded UHT milk and its Anmum infant formula products.

Spierings said the company is also expanding its food services operations in China, where more than half of all the pizza sold in the country are topped with Fonterra cheese.

The company supplies cream and butter to restaurants, hotels and fast-food restaurants in Beijing, Shanghai, and 18 other cities, doubling from two years ago.

Beyond China, it has begun construction of a $31 million plant in Indonesia that will package its Anmum, Anchor and Anlene products to sell in the Southeast Asian country, a major importer of New Zealand milk powder.