The higher cost of goods sold, along with higher interest and taxation, saw the co-operative's net profit after tax decline by 76 per cent to $179 million.
High milk prices, while a boon for farmers, are an added cost to the manufacturing side of Fonterra's operations.
"Constrained margins in our foodservice and consumer businesses and on non-milk powder products were the knock-on effect, contributing to a 27 per cent rise to $19.8 billion in the cost of goods sold," chief executive Theo Spierings said.
Spierings said 2014 was a tough but defining year.
"We focused on building volumes and value in our key markets, especially Asia and Latin America," Spierings said in a statement.
In Asia, Fonterra saw volume growth of 12 per cent, primarily driven by China. In Latin America, Fonterra's Soprole business' focus on new product development and innovation contributed to the region's three per cent volume growth.
"However, our New Zealand and Australian businesses had a challenging year due to much higher input costs and competitive pressure that constrained our ability to pass these on," he added.
These businesses are now on a firmer footing to lift their performance in the current financial year, Spierings said.
Fonterra announced a final cash payout of $8.50 for the 2014 year, comprising a farmgate milk Price of $8.40 per kgMS and a dividend of 10 cents per share.
Chairman John Wilson said that the cash payout to the co-operative's 10,500 farmer shareholders was the highest ever made since Fonterra's formation in 2001.
The farmgate milk price on its own represented an injection of more than $13.3 billion to the New Zealand economy for the 2013/14 season.
Fonterra said its "normalised" earnings before interest and tax came to $503 million for the year to July, down 50 per cent on the previous year's, as high milk prices put pressure on the co-operative's profit margins.
The higher cost of goods sold, along with higher interest and taxation, saw the co-operative's net profit after tax decline by 76 per cent to $179 million.
High milk prices, while a boon for farmers, are an added cost to the manufacturing side of Fonterra's operations.
"Constrained margins in our foodservice and consumer businesses and on non-milk powder products were the knock-on effect, contributing to a 27 per cent rise to $19.8 billion in the cost of goods sold," chief executive Theo Spierings said.
Spierings said 2014 was a tough but defining year.
"We focused on building volumes and value in our key markets, especially Asia and Latin America," Spierings said in a statement.
In Asia, Fonterra saw volume growth of 12 per cent, primarily driven by China. In Latin America, Fonterra's Soprole business' focus on new product development and innovation contributed to the region's three per cent volume growth.
"However, our New Zealand and Australian businesses had a challenging year due to much higher input costs and competitive pressure that constrained our ability to pass these on," he added.
These businesses are now on a firmer footing to lift their performance in the current financial year, Spierings said.
Fonterra announced a final cash payout of $8.50 for the 2014 year, comprising a farmgate milk Price of $8.40 per kgMS and a dividend of 10 cents per share.
Chairman John Wilson said that the cash payout to the co-operative's 10,500 farmer shareholders was the highest ever made since Fonterra's formation in 2001.
The farmgate milk price on its own represented an injection of more than $13.3 billion to the New Zealand economy for the 2013/14 season.
By Jamie Gray, APNZ business reporter
