Fonterra shaves 50c off forecast milk price
Fonterra has dropped its forecast milk price mid-point by 50c as a surge in global milk production is putting downward pressure on commodity prices.
And do Fonterra directors need to go? Would such a move restore credibility with farmers and staff? While it might satisfy people to have someone fall on their sword for our low payout, I doubt these moves would solve our problems.
If people are incompetent in their jobs or make bad business decisions, they need to be fired. None of the expert or non-expert commentators criticising Fonterra has said how they could have done better. But multi-million dollar salaries come with expectations.
Comparing apples with apples, no one is outperforming Fonterra. We have quite a few dairy companies thanks to the DIRA and yet they are paying roughly the same to their suppliers as Fonterra. I would love to see the independents set the standard, flex their muscles and show the big co-op how to do it. They could even guide us on a better way to buy and sell our products and market them. The three P’s have always been the standard for farmers: Payout, Payout, Payout. This is how farmers have always measured the success of dairy companies.
The companies seem to have no problem recruiting suppliers, but not even Open Country Dairy is building more factories. Fonterra suppliers have no choice but to get involved, understand and participate in their co-op.
Fonterra is a good company. I don’t supply it, but it does set the benchmark in New Zealand for dairy processors, is dominant and doesn’t make it easy for competitors to set up. They are subject to the tall poppy syndrome I imagine it’s not easy being at the top.
Farmers like to quote facts about their business – total milksolids/ha/cow, empty rates, farm hectares, etc. But with dairy processors it’s payout. Perhaps we should also be looking at their debt levels over five years, inventory on hand, foreign exchange profit/loss and earnings before interest and tax.
This is not the first tough time our industry has faced, and it will not be the last. These cycles will come and go and hopefully the banking industry knows and is prepared for this. The banks have been making hay while the sun shines, nearly tripling their profits since the 2008 global financial crisis, and they need to give back now the weather has changed.
Suppliers need to know that Fonterra has the right business strategy, and while we can’t control the long-term fundamentals of international dairy demand, hopefully they will get stronger and we will bounce back.
Federated Farmers members tell me loud and clear that Fonterra must remember its NZ dairy business is the number one priority. Overseas expansion is nice but it’s not on all NZ farmers’ minds when they judge success. There is no point in succeeding elsewhere when at home farmers are threatening to leave, dropping the market share.
Dairy company directors have been getting a kicking. But now is the time to be more constructive and to offer solutions to our industry’s problems. This does not stop us from asking the hard questions of the companies we supply, but we shouldn’t be playing the man over the ball.
This approach will only work if farmer and dairy companies are willing to listen and improve communication. The KISS (keep it simple stupid) method works for all strategy; focus on key performance indicators rather than death by Power Point, because now is not the time for a talk fest; we need real action.
• Chris Lewis is Federated Farmers Waikato provincial president.
