Saturday, December 2, 2023

Farmers give thumbs-up

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Fonterra’s new strategy and honesty are a hit with its dairy farmers despite the massive balance sheet losses and the lack of a dividend for the past 18 months.
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Farmers and marketers have welcomed the scaled back and more realistic strategy with triple-bottom line reporting targets, chief among them sustainable earnings and a good return on capital.

Golden Bay Fonterra supplier and Federated Farmers national dairy vice-chairman Wayne Langford echoed many shareholders’ support for their co-operative’s plans to down-size and refocus on New Zealand milk supply while still smarting over the massive losses.

Southland farmer Don Moore, of McNab, had some unease about the ambition of the previous strategy but is more comfortable with the new version and its more modest goals.

Olin Greenan, who farms at Morrinsville in Waikato, is pleased to hear Fonterra admit its previous strategy didn’t work.

“It is the first time they have admitted they have not tracked the way they wanted to.

“It heralds a new beginning with a new direction.” 

Greenan said the fact Fonterra traded profitably last year provides a sound foundation and farmers need to back to co-operative.

Langford said the huge losses are a result of reckless decisions.

“The board and management are now 100% on notice for a good few years and they need to know that.

“Every year Fonterra has asked farmers for more capital. That has dried up and Fonterra will have to create its own. 

“We have made far more successful investments improving our own farm efficiencies compared to what Fonterra has done with our own money.”

However, Langford also feels a co-operative is like a family, where members can fight and disagree but ultimately forgive and stick together. 

For that reason he welcomes the co-operative’s strategy putting farmers, staff and customers in a more co-operative ethos, in a structure more focused on being closer to home than the global aspirant of the past.

“I think if you look at the way Fonterra has gone regarding the Government’s water quality policy, zero carbon and the management pay freezes we are moving into an era of a different style of business. 

“It’s not all about dollars and cents any more. We are going to treat our people differently.”

Auckland University senior marketing lecturer Michael Lee said Fonterra has retreated, regrouped and will reset, a common tactic for a company facing problems.

The previous strategy had over-extended Fonterra’s reach by growing too far too fast and it is appropriate to now focus on its core business.

“It looks like they have taken a retreat, regroup and reset approach, which is a smart move.”

It is appropriate Fonterra focuses on what it does well.

“It needs to work on its strength and go back to its grassroots,” Lee said.

He is pleased Fonterra has launched triple bottom line accounting because that protects its provenance, which is crucial for any future foray into consumer products.

Regional Economic Development Minister Shane Jones, who has previously been critical of Fonterra, said it must be accountable to its farmer owners and investors and the legislators who have given it a privileged position in the world.

“I think the new management has put the company on a more realistic trajectory than has been the case in the past. 

“We all want Fonterra to be successful and we don’t want young farmers or any farming families to be under more pressure than they are already facing.”

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