Fonterra, a New Zealand multinational dairy co-operative, has announced that it lowered its forecast for payouts to farmers for the current season to a six-year low, as challenging conditions in Australia’s milk supply had wiped $37m off its local earnings in the year to 31 July.

The co-operative plans to pay its 10,500 farmer shareholders NZ$5.30 (US$4.30) per kilogramme of milk solids for the 2014-15 season, from a previous estimate of NZ$6.

Fonterra’s chief financial officer Lukas Paravicini told The Sydney Morning Hearld that the company had grappled with significantly higher input costs, which primarily included payments to farmers, as global milk prices soared in the past year.

"We follow the market price and the market price has increased in Australia significantly in the last year," Paravicini added.

"If you take the reference of whole milk powder, that’s gone up 65 per cent. Spikes of 65 per cent are very hard for any consumer business to absorb."

The announcement came after Fonterra’s net profit for its entire business tumbled 76% to $NZ179m ($A163m).

The company attributed the plunge to constrained margins in its food service, consumer business and non-milk powder products as well as Russia’s ban on milk imports from the EU.

"In Australia you have the situation where you have a significant increase on your cost side and in the domestic market you have a competitive situation with … the private labels, which put a lot of pressure on what you can pass on to the market."

In 2014, Global milk prices have dropped more than 40% in 2014, as against the same period last year.