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.
Last season, the co-operative’s share of NZ milk dropped to 78.1%, below a target of 79%.
Fonterra Co-operative Council chair John Stevenson told the co-op’s annual meeting in New Plymouth yesterday that farmers are concerned.
“Council sees retention of milk as a key measure of success of the introduction of the flexible shareholding capital structure and Fonterra’s revised strategy,” Stevenson says.
Fonterra chairman Peter McBride agreed that its faces increasing competition for both milk and capital at home. However, he says opportunity still exists for the co-op.
“We are and always will be a New Zealand farmer-owned co-op, but we are also a global export business. When considering our strategy, we need to challenge ourselves to look beyond the back fence, and past the here and now.”
He also noted that the world was moving out of an era of trade liberalisation and co-operation and into a world that is more expensive, competitive and volatile. Expectations are evolving and New Zealand milk is becoming scarce, he notes.
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“Customers are increasingly calling on us to partner with them to improve their sustainability and innovation capabilities. And there’s even more focus on sustainability from banks, regulators, and from a market access perspective.
“The cost of capital has increased, and many industries – including agriculture and our bankers– face higher capital requirements.
“In this new global context, Fonterra also faces increasing competition for both milk and capital here at home. That all sounds inherently negative, and it’s certainly not without risk, but the opportunity for us still absolutely exists.
“Demand for dairy continues to grow and, in a rapidly changing world, we are uniquely positioned to capitalise on any shifts.”
McBride says Fonterra has high quality New Zealand milk which is becoming scarce.
“And most critically, we have scale. That gives us great confidence in the future of our co-op. Success will come by focusing on our comparative advantages, simplifying the business to meet that, and then aligning our people to achieve that singular vision.”
