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 week unveiled its new strategy, breaking away from the volume based approach pursued under former chief executive Theo Spierings.
Fonterra says its strategy focuses on using NZ milk to meet market needs. “We will create sustainable value for our customers and farmers through innovation, sustainability and efficiency,” the co-op said.
The new strategy means Fonterra will offload its offshore milk pools over time. In China it has 35,000 cows in three farming hubs. These have performed poorly, gobbling up almost $1 billion without returning any profit to the co-op. Two hubs fully owned by Fonterra are under review.
Chief executive Miles Hurrell says the new strategy “recognises we are a New Zealand co-op, doing amazing things with New Zealand milk to enhance people’s lives and create value for customers and farmers”.
“It’s a strategy that’s rich in innovation, sustainability and efficiency. It unlocks value and sees us focusing on three goals: healthy people, healthy environment and healthy business.”
Hurrell believes this is the right strategy for Fonterra but it requires hard choices.
“We’ve looked at the big opportunities and risks for a New Zealand dairy co-op today. We’ve also got clear on what our strengths are and the hard realities we have to face up to. I’m pleased we now have a strategy built from the belief that our farmers’ milk here in New Zealand is the best and most precious in the world.
“Recognising this, while we will complement our farmer owners’ milk with milk components sourced offshore when required, we will start rationalising our offshore milk pools over time.
“Our strategy will see us focus on world class dairy ingredients for our customers around the world, and innovative ingredients that meet nutrition needs right across people’s life stages. We will focus on ingredient categories: paediatrics, medical and ageing, sports and active, and core dairy.”
Fonterra also plans to create new opportunities in new ways for foodservice, building on foodservice success in China and developing new markets, particularly in Asia Pacific.
This focus on dairy ingredients and foodservice, Hurrell says, will see Fonterra playing to its strengths and driving more value from the parts of business that consistently perform. It will remain in consumer business and will focus on markets throughout Asia Pacific.
“The majority of the products we sell in these markets are made from New Zealand milk and are similar to those we sell in our ingredients business,” said Hurrell.
“This creates efficiencies and helps us play to our strengths.
“It also means we will reduce our consumer product portfolio to those that create superior value.”
