New Zealand dairy giant Fonterra has said its business model is undergoing a “fundamental change” following a disappointing set of interim results.

On Tuesday, Fonterra reported that profits (EBIT) for the first six months of its 2019 financial year had declined 29% year on year to NZ $323m (€195m). Fonterra CEO Miles Hurrell blamed the weak earnings performance on challenges in its Australian ingredients business and weak demand for food service in China.

Hurrell said the goal for the second half of the 2019 financial year will be to reset the business so it can deliver improved profitability.

Fonterra chair John Monaghan said the co-op is taking a hard look at its business model and hinted that non-core assets could be sold to improve the underlying profitability in Fonterra’s business.

Westland Milk

Meanwhile, the second largest co-op in New Zealand, Westland Milk, has agreed to sell its business to Chinese dairy company Yili in a NZ$588m (€355m) takeover.

Chair of Westland co-op Pete Morrison admitted the main reason for selling to the private Chinese company was due to the poor milk price paid by Westland over recent years.

In recent years, Westland’s milk price has been well behind the milk price of Fonterra and other processors.

In 2018, Westland’s milk price was $6.12/kg of milk solids (MS) (25.4c/litre) compared to Fonterra’s benchmark milk price of $6.79/kg MS (28.2c/litre).

In 2017, Westland’s milk price was only $5.18/kg MS (21.5c/litre) compared to Fonterra’s average price of $6.52/kg MS (27.1c/litre).