"It is clear that 2007-08 has fundamentally changed market dynamics and volatility is more likely to be the norm, rather than the exception, in the medium term," Mr van der Heyden said.
He said market unpredictability, rising costs, a high currency and financial turmoil made for a challenging business environment in the financial period ended July 31, 2008, but Fonterra delivered its shareholders the best result since its formation, he said.
Average dairy prices achieved by Fonterra during the 14 months to 31 July were $US4350 per tonne, compared with $US2673 a tonne in the previous 12 months, and Fonterra delivered its best-ever financial result in 2007-08, generating $9.3 billion for farmer shareholders, Mr van der Heyden said.
"With global financial confidence tenuous at best and the inevitable lag between price signals guiding farmer decisions around production, there is every possibility of an imbalance between demand and supply influencing prices," he said.
About $9 billion was paid to farmers in the milk price component of the payout, representing $7.59 per kg of milk solids, while profits from Fonterra's global commodity and ingredients businesses and consumer brands businesses generated an additional $364 million, or 31 cents per kg, in value return for shareholders.
From the value return, $277 million (or 24 cents per kg) was retained to strengthen Fonterra's balance sheet, he saidFonterra chief executive Andrew Ferrier said Fonterra, which had worked through demanding and unpredictable business conditions recently, recorded group revenue at $NZ19.5 billion for the 14 month financial year to 31 July 2008, equating to an annual turnover of about $NZ17 billion.
However, with average commodity prices at record levels, the price differential between global prices and in-market prices fell sharply, putting margins under severe pressure.
"We are continuing to look for new opportunities to counter these margin pressures," he said.
Australia and New Zealand's profit was $203 million compared to $200 million last year, improving by $53 million.
Fonterra's Asia/Africa and Middle East business recorded a profit of $90 million, before an impairment charge of $139 million relating to the write-down of Fonterra's investment in San Lu in China, following exposure of milk contamination of the industrial chemical melamine.
The profit for Latin America was up from $58 million last year to $129 million.
