UPDATE 1-NZ's Fonterra raises milk prices for farmers driven by China demand

(Adds details on results, background)

May 26 (Reuters) - New Zealand’s Fonterra on Wednesday raised the price it pays farmers for milk for the upcoming season, following strong demand for its dairy products in China and higher milk prices.

The world’s largest dairy exporter forecast farmgate milk prices between NZ$7.25 and NZ$8.75 per kilogram of milk solids (kgMS) for the 2021-22 season, with a midpoint of NZ$8.00 per kgMS, higher than the current season’s midpoint of NZ$7.55 kgMS.

The company benefited from strong demand for its products in the food service sector in China, Fonterra’s top market.

“China is leading the charge as its economy continues to recover strongly”, said Chief Executive Officer Miles Hurrell. However, he added the company would face increased margin pressure in the final quarter due to rising global dairy prices.

The Auckland-based company’s nine-month normalised net profit after tax surged 61% to NZ$587 million ($424.28 million), and revenue was down about 3% at NZ$15.5 billion.

Earlier this month, Fonterra put its capital structure under review to further streamline operations. It previously sold some of its overseas assets to cut down debt, which supported the company’s earnings over the nine-month trading period. ($1 = 1.3839 New Zealand dollars) (Reporting by Anushka Trivedi and Soumyajit Saha in Bengaluru; Editing by Shounak Dasgupta)