Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The co-op last month exported 300,000 tonnes of dairy products, setting a single-month record for volume shipped to global markets.
Last month's volume was nearly 10% higher than Fonterra's previous record month in December 2014.
Fonterra managing director for global ingredients Kelvin Wickham says the record reflected direct-to-customer ingredients, consumer and foodservice sales success despite the tough global market environment.
"This is an excellent achievement by our sales and logistics teams and it is gratifying to finish 2015 on a high with this record export volume.
"We have seen unprecedented global volatility due to geopolitical events over the past year. The dairy market has been a tough environment globally, so we are pleased to achieve record export volumes despite the challenges."
Wickham says the new benchmark would be difficult to surpass as reduced milk volumes began to impact on the cooperative's production levels.
Fonterra is forecasting a year-on-year reduction of milk volumes by at least 6% this season as farmers responded to the low milk price and dry conditions in some regions.
In its December monthly update Fonterra said it is expected to collect 1523 million kgMS this season.
It says farmers are using more traditional practices to manage their business within the limits of a low payout.
"Farmers have reduced stocking rates and supplementary feeding in order to help lower costs. We have the advantage of a largely pasture-based system which allows this.
"Historically we have seen that climatic conditions can cause a lot of volatility in late season milk collection when the farmgate milk price is at lower levels. Farmers are likely to rely more on rainfall to support grass growth and milk production, and less on supplementary feed."
Fonterra's milk collection across NZ in November was 4% lower than the same month last year. For the first six months of the season, ending November 30, milk collection reached 737m kgMS.
North Island milk collection in November reached 127m kgMS, 6% lower than November last season. South Island milk collection in November was 82m kgMS, in line with November last season.
Responding to global dairy prices, particularly for its flagship product whole milk powder, the co-op has reduced the amount of WMP on the GlobalDairyTrade (GDT) auction over the next 12 months by 146,000 tonnes.
The co-op says it is changing its product mix away from base milk powders and towards contracting and demand via other sales channels.
"An increased portion of product is being sold through bilateral customer agreements for a premium on prices achieved on GDT. Ingredients inventory levels for the first quarter were in line with the same period last year," says Wickham.
