Fonterra's half-year profit has slumped by more than half because of high raw material costs.
At the announcement, from left, Lukas Paravicini, Theo Speirings, John Wilson, Kerry Underhill. Photo: RNZ / Kim Baker -Wilson
New Zealand's largest company made $217 million in the six months to the end of January, compared with $459 million in the same period a year earlier - down 53 percent.
However, it is still on track to make a record payout to farmer shareholders.
Fonterra says it has been an exceptional six months as record global demand for milk powders has caused high volatility and boosted revenue by 21 percent to $11.3 billion.
Its profit has been hit, however, because it has to buy the milk at the higher prices before turning it into consumer products such as milk powder.
The cooperative says it has not passed on all the costs to customers, because it wants to keep prices lower as it builds its presence in key markets such as Asia.
But the strong milk powder prices also keep it on track to deliver the highest-ever payout to farmer shareholders of $8.75 per kilogram of milk solids. It says that represents an injection of $14 billion into the New Zealand economy.
Fonterra says the second-half profit result is likely to be even lower because of the milk price trend.
Announcing the profit slump at a news conference in Auckland on Wednesday, chief executive Theo Spierings said the contamination scare in Sri Lanka dented earnings.
The company was targetted by protesters and 130 tonnes of milk powder was quarantined and destroyed there last year.
Mr Spierings said sales in Sri Lanka were down 33 percent but there was growth elsewhere in Asia, with the China operation going very well.
"Do we need to build our relationship to become a real citizen, a true citizen, of the Sir Lankan community or of Sri Lanka as a country? Yes, we still need to do work," Mr Spierings said.
Overall, volatility in commodity prices was expected to continue, and the company's second half result was likely to be lower than the 2014 first half, he said.
Fonterra chairman John Wilson said it was important farmers realised the company was in a strong position.
"There's high powder prices globally, high commodity prices, we're able to hold our farm gate milk price at this stage at $8.65. We're still holding our forecast a full year dividend of 10c per share so that's an $8.75 forecast.
"The reality is though with these very strong commodity prices that has put pressure on our margins.
"But what's really important from a Fonterra perspective is that we're staying on strategy. We're driving volume into these value added business in Asia, in South America and across Oceania. So in the short term we are taking a little bit of pain in our earnings but it's all about staying on strategy and driving volume in value for our co-operative."
Fonterra's chief financial officer Lukas Paravicini said the contamination scare in Sri Lanka last year had come at a cost.
"Sri Lanka's sales have been reduced by 33 percent," Mr Paravicini said.
"So it is a significant impact. That is history. We're not going to get that back but we're back on track now."
