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.
Global dairy prices are now returning to some sort of sustainable level, Wilson told Dairy News. The market has come back into balance and supply is constrained.
“In New Zealand and Australia supply is well down and in Europe as well, but the milk price is still increasing in the US,” he says.
“On balance, supply and demand are coming back to some sort of balance.
“Being able to forecast $6/kgMS and, importantly, keeping cash flowing to our farmers – another 50c or so [dividend] depending on milk supply on December 20 – will be a fillip for the summer.
“It has been tough for our farmers and we have focused on using the strength of the co-op to get money flowing.”
The forecast is good news for farmers and their communities.
“For the board and management over the last couple of years, with all this volatility, it has been a challenge forecasting,” Wilson says. “That has frustrated us because it makes it hard for our farmers.
“We have been doing everything we can to get our forecasting right and using the strength of the co-op.”
One aspect has been Farm Source which “I am very, very pleased with,” says Wilson. “These things take a couple of years to get going but the support we have been able to provide our farmers in the regions… using our collective strength to give our farmers more buying power has been a critical part of it.”
The co-op has used its strength to get working capital out of the business and direct it to farmers, all the while staying on strategy. “That’s the other important thing; in times of difficulty it is critical you stay on strategy. That is putting us in good shape right now.”
The focus has been long term while getting the short term decisions right.
“It is going to take some time clearly. We expect ongoing volatility and the difficulty in the last couple of years onfarm for our farmers will take a while to recover from.
“Our farmers have done a superb job bringing our costs down but that comes with its own difficulty and stress on farmers.
“Debt levels have come up slightly because working capital has been required, so overdrafts have been extended. Farmers will focus in the short-medium term on paying that debt down and getting their businesses in better shape.
“Moving into summer with stronger cashflows will make a big difference onfarm.”
Our farmers are good business people, Wilson says.
“We expect ongoing volatility; we will keep our farmers as informed as we can… [but our forecast was made] in early November, so it’s a long way to the end of the year.
“For us as farmers we need to be mindful of our own businesses as the volatility we have experienced over the last four-five years is not going to change. We have to settle our own businesses to be able to deal with that.
“Fonterra will continue to drive… as much volume as possible into higher value products. But most of our exposure as farmers is to global dairy prices and global foreign exchange rates.”
