Chairman John Wilson the year had tested the co-op's resilience.
"After a superb first six months for both production and performance, our farmer shareholders endured a drought which in some regions was the worst in nearly 70 years," he said.
"The extremely dry conditions meant a drop in New Zealand milk production of 9 per cent in the last six months of the season," he said in a statement.
Overall, New Zealand milk production declined 2 per cent to 1,463 million kg for the season to May 31, which hit farmers and the business financially.
Fonterra on Tuesday forecast a farmgate milk price of $8.30 per kg for the current 2013/14 year, which would be a record if it comes to pass.
Chief executive Theo Spierings said Fonterra had made good progress with its strategy during the year, particularly in foodservice, everyday nutrition and advanced nutrition.
Climatic and market conditions, however, frustrated efforts to achieve higher earnings.
He said the cooperative's normalised earnings were down because of the combined impact of the drought and the reshaping of Fonterra's Australian business.
The business achieved strong earnings growth in Asia, Africa, the Middle East and in its Soprole business in Chile.
However, this was offset by a weaker second half from NZ Milk Products and a 37 per cent decline in normalised earnings before interest and tax in Australia and New Zealand (ANZ) as we make changes to our Australian business.
Commenting on the August botulism scare and product recall, Spierings said the subsequent "all clear" following further tests was a relief, "but did not alter our view that the recall was the correct course of action at the time".
