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Fonterra has 20,000 suppliers globally, of which 8,200 are in New Zealand.
Fonterra chairman John Wilson says changes to its vendor payment system could have been handled better.
Wilson told Dairy News that Fonterra shareholders have brought the issue up with him.
"Farmers are very aware we are trying to get all the money we can into farmers' hands," he says. "But they acknowledge the significant input Fonterra has across the wider New Zealand community."
In November Fonterra wrote to about 1000 large suppliers in NZ, asking for term of payment to change from 20-30 days to 60 days. Wilson says this policy is appropriate and reflects the reality of the business.
He says Fonterra has 20, 000 suppliers globally, of which 8,200 were in New Zealand.
"We have asked about 15% of our vendors to change from 20 to 30 payment term to a 60-day payment term."
But he says it was never the intention of the co-op to treat any vendors unfairly.
"It's about ensuring that we run the business as prudently as possible and get the best return for our farmers. But we never intended to put these small businesses in a difficult situation."
Waikato University professor of economics Frank Scrimgeour says it's an appalling move and he was disappointed with the country's largest company.
Speaking at the Future Farms Conference in Palmerston North recently, Scrimgeour said in the past he had not made negative comments about Fonterra but he was speaking out now.
Scrimgeour says Fonterra should treat its suppliers with respect and follow standard commercial processes.
"I observe people in Waikato who have supplied services to Fonterra for more than 20 years and they get 'a Dear John' letter; it's not even personalised.
"They get told the bills are not going to be paid for 90 days and they face a demand to cut their price by 10%. But that's not the way you do business; if you want to renegotiate a contract you face up to them and talk to them face-to-face. This is very bad modelling, very unhelpful for the cause of dairying, very unhelpful for the reputation of Fonterra."
Scrimgeour says the dairy industry has to face many challenges not of its own making. Life's already difficult but Fonterra must play the tough game and within the rules.
Wilson says Fonterra has started one-on-one discussion with the vendors concerned.
"Yes, we could have rolled it out better; right now we are in discussions with our vendors. And our people having those discussions are being supported with better information so that there is a better understanding of what we have done."
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