Weak global dairy prices have wiped 34 per cent off the net profit of Australia's biggest milk processor, Murray Goulburn.
Net profit fell to $10 million in the six months to December 31, compared with $15.2 million in the same period the previous year.
Managing director Gary Helou attribute the drop to subdued global dairy prices.
"The first half has seen the continuation of the decline in Chinese imports of commodity dairy ingredients and the ongoing Russian embargo on dairy imports," he said.
"This has been compounded by increased European milk supply, resulting in a period of significant oversupply in global dairy commodity markets, driving commodity prices to record lows."
But Mr Helou was confident Murray Goulburn's strategy of moving into more value added products would help cushion the company against global volatility.
He said the co-operative increased sales of its higher margin dairy foods business by 28.1 per cent during the first half of the 2016 financial year.
Overall sales firmed 3.7 per cent to $1.38 billion.
But the co-operative cannot completely escape commodity price volatility and Mr Helou said the continued weakness in global prices would lead to its ingredients and nutritionals business "materially underperforming against" its prospectus forecasts.
"This underperformance is expected to be partially offset by growth in the dairy foods segment resulting from the acceleration of production mix shift and the expected strong performance of domestic and international ready-to-consume dairy foods product sales"
Mr Helou said the co-operative expected to maintain its farm gate price of $5.60 per kilogram of milk solids. This would generate full year net profit of $63 million, under the co-operative profit sharing mechanism between farmers and investors in its non-voting listed trust.
Murray Goulburn will pay an interim divided of 3.5 cents a share, fully franked.
- This story first appeared on The Australian Financial Review.