Wednesday, December 6, 2023

BLOG: Fonterra sets sail for new success

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Fonterra’s farmers are reportedly pleased with the direction and principles of the co-operative’s reset strategy.
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It was going to contain few surprises and be broadly acceptable because chairman John Monaghan and senior executives had signalled major elements beforehand and farmers’ representatives had been consulted. The new strategy was necessary to rebuild confidence in Fonterra’s recovery and it has been mostly sideline-critics so far who have found it less than convincing.

As with any major company, the mainstream activities of processing, selling, exporting and marketing will continue as before. Chief executive Miles Hurrell said the strategy directs where Fonterra spends its discretionary dollars. Therefore, it is a bit rich to include among the priorities for this year an intention to inject $10 billion into rural communities through competitive milk price payments. That happens every year and hasn’t really been in question since the disastrous 2015-16 season. For the glass-half-full farmer three successive $6-plus payouts and the likelihood of a fourth to come demonstrate, firstly, why Fonterra exists and is supported and, secondly, that NZ grass-fed milk has superior qualities.

Hurrell also said NZ milk is an increasingly valuable and scarce resource. With the resources at his disposal, even if the head count falls, Fonterra ought to be able to maximise, in what it calls a process of premiumisation, the values of our milk. It has abandoned any ambition to be the Nestle of the South Pacific and Fonterra’s directors won’t be spending up large on in-market acquisitions.

To simplify the numbers right down, in the past three seasons Fonterra took in about 20b litres of milk, sold the products for about a $1 a litre and paid its New Zealand farmers slightly more than half of the revenue. Former chief executive Theo Spierings’ ambition was to increase revenue to $1.20 a litre, which should be a reachable target for his successor and the senior management team.

With a common-sense strategy, the goodwill of employees and farmer-shareholders and a following wind of good global prices Fonterra should sail a more successful course.

Hugh Stringleman

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