Fonterra plans to slash its consumer brands in Australia to restore profitability as competition intensifies for milk supply and retail sales.

The dairy giant's ANZ division, which produces consumer products and ingredients in Australia and New Zealand and runs the RD1 rural supplies chain, posted a 32 per cent decline in normalised earnings before interest and tax (ebit) in the first half year to $98 million.

Of that, ebit from Australian consumer brands fell 31 per cent while New Zealand consumer brand earnings were "slightly up."

"There's a new reality in Australia," chief executive Theo Spierings told reporters on a conference call on Wednesday.

Fonterra is facing "aggressive competition" in milk supply and, with a retail price war in Australia, it has to ensure its supply chain is cost-effective.

"That's why we have to rationalise brands, rationalise our organisation," he said.

Fonterra has 21 brands in Australia, which has room for a maximum four or five, he said.

It was too soon to say what plants or jobs losses may result, though Mr Spierings noted the company has a wide variety of yoghurt brands and also faces pressure in the milk market.

Fonterra has seven main plants in Australia.

Fonterra is likely to trim back its 65 brands around the world, starting with Australia.

"Given our footprint, that's too much," Mr Spierings said.

In October, Fonterra announced the closure of its Cororooke factory in southwest Australia that made soft cheeses and cream products.

In November, Norco Co-operative announced it would buy back the milk marketing, sales and distribution business it sold to Fonterra in 2007, ending Fonterra's rights to its brands.