FONTERRA Cooperative Group, the world’s biggest dairy exporter, will cut the price of cheese, butter and yogurt in New Zealand amid rising global production.
“The prices we charge our customers will fall and we expect that to flow through to the shopping aisle,” Peter McClure, managing director of Fonterra Brands, said.
Auckland-based Fonterra sells about half the dairy products available in New Zealand stores, including Anchor butter and Mainland cheese.
World prices for dairy products have slumped 25 percent from a record in November, according to ANZ National Bank data, on the global economic slowdown and increasing output in the US, the no. 2 producer, and Australia.
Last month, Fonterra cut the value of its stake in Sanlu Group Co., the company at the center of a milk scandal in China.
“We have product in inventory such as cheese that was bought six months ago, so it might take some time for our prices to drop in some categories,” McClure said. “The overall message is they will drop.”
Also yesterday, crude oil fell for a third day in New York, poised for the biggest drop since 2004, on signs the US is slipping into a recession, reducing fuel demand in the world’s largest energy user.
Oil has declined 13 percent this week as higher borrowing costs and reports showing a worsening economy spurred skepticism that the US government’s $700-billion bank-bailout plan would stimulate growth.
“It’s difficult to see any bright side for oil or other commodities markets,” said Tetsu Emori, a fund manager at Astmax Ltd. in Tokyo.
“People don’t want to leave their money in commodities.”
Fonterra said it could not detail the timing or size of the likely price reductions as the outlook for commodity prices and currencies remained unclear. The final prices consumers are charged are set by supermarket operators. McClure expected shoppers would see lower prices by Christmas.
Prices of milk, cheese and eggs rose 24 percent in the second quarter from a year earlier, according to the government’s July 15 inflation report. New Zealand is the world’s biggest dairy exporter followed by Australia.
US milk production in August was 1.1 percent higher than a year earlier, the Agriculture Department said Sept. 18. Australia’s output in July increased 6.5 percent from a year earlier when drought cut supplies.
Melamine-tainted milk has killed at least four infants and left 53,000 ill, according to Chinese officials. Food makers and regulators in Hong Kong, Japan and the Philippines have since recalled products after melamine was found in Chinese-made drinks, chocolate and desserts.
Fonterra owns 43 percent of Shijiazhuang, Hebei province based Sanlu, and last week wrote off NZ$139 million ($93 million) from the value of its investment. Bloomberg
