Fonterra dairy co-op forges ahead and eyes new overseas markets

In a global market rocked by uncertainty, the New Zealand co-op has enjoyed a remarkable turnaround

New Zealand dairy co-op is looking back at a “spectacular turnaround” and eyeing overseas expansion.

Its revival in fortunes are in marked contrast to its Australian counterpart Murray Goulburn, which is looking for a buyer after a troubled period which saw it record an annual loss after tax of AU $371m and suspend dividends.

Fonterra, based in Auckland, New Zealand, also had to cut its farmgate prices in 2016, during a volatile period for the global market – but unlike Murray Goulburn, it has managed to turn around its fortunes and has just won the the 2017 Export NZ Supreme Award for the Auckland and Waikato regions.

In March, its half-year result showed profits after tax had risen 2% to NZ $418m. In April, it paid an interim dividend of 20 cents per share, and has lifted its farmgate prices.

It is continuing to expand – including its Australian division, where it has just announced a new AU$150m cheese production plant in Stanhope, in Murray Goulburn’s home state of Victoria.

Fonterra Australia managing director René Dedoncker said: “Fonterra is the leader in Australia’s $2bn consumer cheese category, the market leader in foodservice, providing dairy solutions to chefs across Australia, and one of Australia’s top dairy ingredients exporters.

“The new Stanhope cheese plant helps us build on our market position, ensuring we have a sustainable business that delivers to everyone along the value chain.”

The company says the new plant can process up to 1.3 million litres of milk a day, with Fonterra hoping to meet rising demand for cheese in Australia and also in China and Japan.

Fonterra is also ranging further a field, and has just bought a NZ$11.7m stake in Lithuanian dairy business Rokiskio Suris.

The 10% stake follows several years of commercial partnership, with Fonterra sourcing raw material from Roksskio Suris to make speciality products in Europe.

And the co-op’s online auction platform, GlobalDairyTrade, is looking at a tie-up with the European Energy Exchange – part of Deutsche Borse Group – to extend the dairy offering in the region.

The two operators have signed a letter of intent to investigate a joint venture to establish and operate an auction mechanism for dairy products originating in Europe.

Craig Presland
Craig Presland of Cooperative Business NZ

Craig Presland, chief executive of Cooperative Business NZ, the industry body that supports and advocates for NZ’s co-ops and the co-op business model, said its “financial turnaround over the past 12 to 18 months has been nothing short of spectacular.

“It has delivered record profits, grown its foodservice business in line with its goal of NZ $5bn in sales by 2023, and most importantly increased its payout by over 50% year on year.”

He said Fonterra’s 2016/17 milk payout projection sits at NZ $6.60-$6.70/kg milk solids – up from $4.30/kg in 2015/16 and $4.70/kg in 2014/15. And it has recently announced a projected 2017/18 payout of between $7.20-$7.30, almost 70% up on the payout of two years prior.

Mr Presland says last year’s review of Fonterra’s governance and representation model has helped to “future-proof” the co-operative. It followed more than 500 shareholder meetings held around NZ, and saw Fonterra’s farmers mandate a capability-led selection process for its board and a reduction in board size. 

There was also a public relations drive to promote understanding of its co-op model, and a transformation programme, Velocity, to create faster performance improvements. These brought “a mind-set change based on collective thinking and devolved decision-making which has increased the speed of business while also improving efficiencies,” said Mr Presland.

“For example, improvements in its global supply chain reduced the lead time for getting UHT cream and milk into China from 100 days to just 34 days, making Fonterra UHT the freshest imported UHT cream and milk in China.

“Fonterra currently has more than 4,500 Velocity initiatives worth more than $1.5bn in value.”

Global dairy prices and foreign exchange rates remain volatile, but Mr Presland says Fonterra measures in place to manage these risks, and has supported the development of financial markets for dairy across the globe.

He also pointed to Fonterra’s  Trust in Source approach, designed to ensure quality throughout its supply chain, and said the co-op continues to build its food traceability capabilities, including an automated system to help it track the batch history of all ingredients and packaging efficiently and accurately across its supply chain within a few hours or less.

“Fonterra is now piloting a new world-leading approach to product authentication which will allow customers across the world to access product confirmation and origin details at the point of sale using their mobile phone,” he added.

Co-operatives are about collective strength,” said Mr Presland. “Fonterra has used its size and scale to create an efficient end-to-end dairy manufacturing and supply chain in order to maximize its returns.

“It collects and processes its milk as efficiently as possible while also moving more of it into higher-returning products. Fonterra’s manufacturing plants operate with a mind-set of continuous improvement and utilise a combination of lean, reliability technology and advanced process control to drive efficiencies.”

  • This article was amended on 25 September. The 13th paragraph stated that Craig Presland was CEO of Fonterra. He is CEO of of Cooperative Business NZ.

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