Expert Says Fonterra Backing Current Strategy With New CEO Appointment
The appointment of Richard Allen as Fonterra's new chief executive signals execution, not strategy, according to agribusiness expert Dr Nic Lees.
In Fonterra's case, the co-op is offering Australian suppliers $1.50/kgMS more than what it's forecasting for New Zealand farmer shareholders this season.
Last month Fonterra Australia announced an opening weighted average milk price for the 2023/24 season of A$8.65/kgMS. Converted into New Zealand dollars, it amounts to $9.50. For NZ suppliers, the co-op last month opened with a margin of $7.25 to $8.25, and a midpoint of $8/kgMS.
Fonterra says its Australian milk price is made up of the minimum monthly rates set out in Fonterra Australia's milk supply agreement, together with standard production and quality incentives.
Fonterra Australia managing director René Dedoncker notes that Australian farmgate pricing for the season ahead remains higher than international commodity values, which have fallen by 17% in the past year. However, he says it is supported by the strength of Fonterra Australia's domestic business which comprises most of its revenue.
"Despite the decline in international prices, the outlook for dairy remains generally positive with global demand currently expected to lift in the medium-term, with only modest supply growth forecast in export regions."
Dedoncker says that Fonterra Australia's business was well-placed to continue to deliver good returns.
"Our Australia business continues to perform well, with our Consumer and Foodservice sales channels maintaining their market-leading positions. Our focus remains on putting the milk from our farmer suppliers into the highest value products, managing our costs and maintaining a profitable business.
"We are confident in our price position and our ability to be competitive, with our diversified product mix, sales channels and access to domestic and export markets giving us options for our farmer suppliers' milk."
Fonterra's main rivals in Australia are offering higher farmgate milk price: Bega Cheese has opened with A$8.80/kgMS and Canadian dairy giant Saputo A$9.05/kgMS.
Saputo Dairy Australia supplier relations director Anthony Cook says for the new season, SDA has enhanced its milk price offer to meet the needs of more suppliers.
"We have invested in new payment options and incentives, including for farmers who want to invest in the growth and sustainability of their dairy business," says Cook.
"As part of our ongoing commitment to the Australian dairy industry, we have expanded our tailored investment and finance support, payment options and continue our specialist services to further assist suppliers in meeting their short - and long-term business goals. We are also proud of our continued investment in industry initiatives, in our plants and in the communities where our people and our dairy farmers live and work."
Australia’s year-on-year national raw milk production volumes are decreasing, down to 8.5 billion litres in 2021- 22, and forecast to fall slightly below 8 billion litres for the 2022-23 season. The new season, which started June 1, is expected to record another fall of up to 4%, lowering the national milk yield to 7.8 billion litres.
The dwindling milk pool and high farmgate prices are putting enormous pressures on dairy manufacturers.
Executive Chairman of the Australian Dairy Products Federation (ADPF), John Williams says the current operating conditions for manufacturers are tough and need to be countered so that Australian regional jobs and economies are not hit hard if processors are forced to rationalise their operations.
“On top of the decline in global prices, Australian dairy processors are contending with low volume growth, exorbitant overhead and input costs (inclusive of energy, transport and raw milk), a tough and highly competitive domestic trading environment, and rapid growth in import competition,” Williams says.
He notes that, year-todate (February 2023), the volume of imports from New Zealand are up 22% and imports from the US are up 46%.
“Further, the current 20% higher farmgate milk prices being paid in Australia compared to New Zealand, places Australia at a competitive disadvantage not only in export markets but it is also being reflected on our supermarket shelves with New Zealand made cheese and butter priced significantly cheaper than Australian made products,” Williams says.
Despite inflation related cost of living pressures, encouragingly the demand for nutritious dairy products continues.
“However, to participate as a viable supplier to meet this demand and provide confidence in the security of Australian manufactured products to our customers, we need more of that core ingredient of ‘raw milk’ and this currently is a leading challenge for the Australian dairy sector,” he says.
