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.
"For those organic dairy farmers whose contracts were about to expire, this is a lifeline," says Gray Beagley, Feds Dairy organic spokesperson.
"Those farmers whose expiring contacts have been extended to 2015 will be cautiously optimistic, but a distinct lack of trust with this latest U-turn will remain.
"Fonterra's 'we want you; now we don't; now we do' attitude to organics is very confusing for farmers. Who can plan and de-risk a business under those circumstances?
"Federated Farmers urges Fonterra to see what they can do to build demand so the cooperative does not feel the need to again threaten our contracts when they come up for renewal in 2015.
"For the sake of our industry, we cannot afford to go through these boom-bust cycles. In 36 months Fonterra has been through a 360 degree change in position.
"Fonterra is reporting an impressive 28% increase in demand over 2012 and 2013 and a 30% increase in prices received for organic product. It is gratifying to see 83% of our organic milk going into organic dairy products, compared to just 45% back in 2011.
"Organics farmers want to see more sustainable growth in demand and much more certainty. Unless these happen, Fonterra Organics will continue to lose suppliers.
"Those being offered the new contracts have three weeks to decide, but Federated Farmers also hopes this time period is extended to give drought-hit farmers a bit more breathing space.
"I hope Fonterra truly comprehends the value and future potential organics can offer. The recent Organic Market Report 2012 showed significant growth in the export value to Asia, which aligns with our view.
"Federated Farmers knows the United States' Free Trade Agreement with South Korea will potentially have a huge impact on cheese exports into this important market. Overall, it is unlikely New Zealand will be able to compete with US products, as they will not face the huge 36% tariffs placed on New Zealand cheeses.
"While we hold out hope South Korea may look to enter Trans Pacific Partnership negotiations, we believe organics is a strong natural fit with infant nutrition and for paediatrics. We believe infant nutrition may prove less vulnerable to consumer preference while building off New Zealand's strong brand and food safety credentials," Beagley concludes.
For further information contact: Gray Beagley, Federated Farmers Dairy organic spokesperson; 06 376 4356, 027 444 8525
