Fonterra slashes prices in China

China took in about a third of New Zealand's milk powder exports in the 12 months ended May 31. Photo / APN

Fonterra has announced a 9 per cent price cut in its Anmum maternal health products sold in mainland China just as the people's republic gets an investigation into the pricing of dairy products there under way.

The co-operative said the price cut was to better meet consumer needs in light of recent industry-wide price revisions.

"We are committed to providing high quality, premium imported products to Chinese consumers and we are also committed to being an integral part of and long-term partner to the Chinese dairy industry," said Kelvin Wickham, president of Fonterra Greater China and India.

The price cut will be effective from August 1.

Fonterra confirmed it had been contacted by the China National Development and Reform Commission (NDRC) regarding a current broad-ranging investigation into consumer dairy products in China. "Fonterra understands that the NDRC is reviewing a wide range of consumer businesses in the Chinese dairy industry as part of this work," it said.

Auckland-based Fonterra operates a small consumer business in China and has a long history of engagement with government agencies and was co-operating fully with the NDRC, it said, adding that it would provide further updates on any outcomes when the investigation was complete.

The Anmum range includes specially formulated milks for women planning to start a family, during pregnancy and while breast-feeding, as well as products for infants and young children.

Bank of New Zealand rural economist Doug Steel said the investigation could be significant for Fonterra.

"It's one to watch I think," Steel said.

Fonterra joins Danone, Royal FrieslandCampina, Abbott Laboratories, Nestle and Mead Johnson Nutrition in cutting prices since the NDRC launched its investigation.

Earlier this month, the People's Daily reported the NDRC had evidence that infant formula prices have climbed 30 per cent since 2008 - the year after a melamine scandal that left several infants dead.

China accounted for about a third of New Zealand's milk powder exports in the 12 months ended May 31, according to ANZ data.

The news from China did not appear to affect the Global Dairy Trade auction overnight, with the trade weighted index gaining 4.9 per cent since the last auction a fortnight ago. Units in the NZX-listed Fonterra Shareholders' Fund closed up 2c yesterday at $7.42.

Economists said dairy farmers could be looking at another record year for profits in 2013-14 because of higher prices and the lower New Zealand dollar.

Prices for whole milk powder - the most important line for New Zealand producers - were up 7.7 per cent from the last auction at US$5058 a tonne.

ANZ Bank said prices gained as buyers scrambled to refill their inventory after last summer's drought and a seasonal low in New Zealand supply, which would put upward pressure on Fonterra's $7 per kg of milksolids milk price payout forecast for this season.

"The lower New Zealand dollar and higher-than-expected prices will raise the prospects of Fonterra lifting their initial May forecast of a $7 per kg milk price for 2013-14," ANZ said.

Westpac said world supply of dairy products remained relatively tight, which would see dairy prices higher on average for 2013 compared to 2012.

- additional reporting BusinessDesk