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Fonterra Eyes Growth Beyond China as Profits Fall 24% Amid Strategic Consumer Divestment

  • Writer: PYD
    PYD
  • Mar 22
  • 2 min read

Fonterra’s Q1 FY2025 results show strong momentum in South East Asia offset by sharp declines in China and rising input costs, leading to a 24% YoY profit drop. The co-op is doubling down on high-margin Foodservice and Ingredients segments while progressing its consumer brand divestment.



Insights & Strategic Moves:


• Profits Fall Despite Revenue Stability:

Revenue rose marginally by 1.92% YoY to NZ$5.2bn (US$2.99bn), but profit after tax declined 24% to NZ$263mn (US$151.2mn). The drop is attributed to lower sales volumes, higher milk prices, and a planned NZ$31mn (US$17.8mn) investment in digital transformation.


• China Weakness Hits Core Volumes:

China’s dairy and milk imports declined 12.2% YoY, significantly impacting Fonterra’s exports to what was once its top market. Slower inventory turnover due to strong FY2024 year-end sales also contributed to Q1 softness.


• South East Asia Emerges as Growth Driver:

Asia ex-China saw a 10.3% YoY rise in dairy imports, led by strong demand in South East Asia. Fonterra’s Consumer brands saw notable volume growth here, supported by successful localised brand promotions.


• Strategic Rebalance: Divesting Consumer to Double Down on B2B:

Despite strong SEA performance, Fonterra is progressing with divestment of its Consumer business—including flagship brands Anchor, Anlene, and Mainland—to focus on its higher-margin Foodservice and Ingredients segments.


• Global Production Mixed Amid Weather Volatility:

New Zealand and Australia production remains strong due to favourable weather, but output in the US and EU has been constrained by adverse conditions and animal health issues, pressuring global supply optimisation.


• Gross Margin Pressures Partially Offset by Mix Shift:

Higher milk costs have narrowed price relativities, but improved product mix—allocating more milk to value-added Foodservice and Consumer categories—has provided partial margin protection.


Forward Outlook:

China’s demand recovery remains uncertain, but SEA momentum and targeted portfolio realignment could stabilise profitability. Execution on divestment and continued margin discipline will be critical in the coming quarters.


Fonterra’s pivot from Consumer to B2B signals a decisive shift toward scalable, margin-accretive growth—though it must now navigate reduced China exposure and a structurally tighter cost environment.





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