Iran has 'huge potential' - Fonterra boss

Iran has "huge potential" as a destination for New Zealand's dairy products, Fonterra boss Theo Spierings says.

A Fonterra milking truck with the logo on the side. Source: 1 NEWS

Sanctions against Iran are being lifted with the signing last month of a landmark deal that will curb the Middle Eastern country's nuclear capabilities.

Foreign Minister Murray McCully has previously said the agreement will open the door for further progress to be made in the relationship between New Zealand and Iran.

Mr Spierings said Iran is a "huge market" with plenty of potential.

"Iran is definitely part of the future plans," he told TV3's The Nation on Saturday.

"Iran is a massive market for fat, so for butter and butter oil, so that's the ingoing position, but you will see demand coming out of there for milk powders as well."

Mr Spierings' comments come after Fonterra, the world's largest dairy exporter, slashed its farmgate milk price for this season by $1.40 to $3.85 per kilogram of milk solids.

That'll leave few farmers able to make a profit, with Dairy NZ estimating that $5.70/kgMS is the industry average break-even point.

A slowdown in China and a glut of milk powder in the Chinese market have been fingered as contributing factors to the dairy price drop.