JUDITH Swales has a reputation as the «Ms Fixit» of the Australian food industry but believes the answer in dairy is all about making the farmer happy and confident because that is the way to increase supply.
Amid all the noise in recent months over Warrnambool Cheese and Butter, Swales is relaxed, noting in an interview with The Weekend Australian the increase in demand for milk globally will be 100 billion litres — more than 10 times the present volume.
«There is plenty of demand for everyone, it’s just a matter of making sure milk goes to the people who will be most profitable.
Swales doesn’t spend much time talking about traditional sore points like retailer domination and competition; for her the answer starts and ends with increased supply and making the most of it . «We should be focused on filling the production gaps and ensure that no farmer needs to worry about long-term profitability and the ability to sell the milk,» she said.
The daughter of a Yorkshire milkman, Swales arrived in Australia in October 2001 to run Angus & Robertson for WH Smith, only to find the company planned to exit the book business in Australia.
She moved then to another two companies about to exit Australian manufacturing — Goodyear and HJ Heinz — before joining Fonterra nine months ago. Swales studied microbiology and virology with the plan to take medicine before opting instead for a 10-year stint in management training at British retailer Marks & Spencer.
When asked what is wrong with Australian industry, she can list the usual answers such as inflexible industrial relations, the value of the dollar and the like, but settles with: «Lack of innovation. The question people need to ask is: how do you create Australia as a point of difference in the world?»
Fonterra has about $1 billion invested in Australia and, while its profitability is not published, last year it made money but dropped on previous years, and Swales is the first to admit it is not earning its keep.
While the company is based across the ditch in Auckland, she reports to Asia-Pacific boss Pascal De Petrini in Singapore.
New Zealand production is 2.3 times bigger than Australia but the value provided by the parent company is an extraordinary global distribution network and a powerful research and development centre.
Since taking the reins locally she has revamped her management team, bringing together brands and ingredients under the one roof. She has some new and old talent, including company veteran Bruce Donaldson as global head of sales, former Nestle and Heinz executive Stuart Martin, as supply chain chief, and a new marketing boss in former Lion executive Kiril Simonovski.
The new team is in the final stages of laying down a three-year plan based around increased milk supplies and getting more milk products to market.
As a company, she says, «we have been slow to recognise the changes in retail and through supply, and farmers have lost confidence.» Fonterra processes about 1.6 billion litres a year, half that of industry leader Murray Goulburn and ahead of Lion at 1.2 billion and WCB at 900 million.
It pays an industry-leading farm gate price to farmers at between $6.60 and $6.80 a litre, and a team of 45 people in the support team is sent around the country to help farmers cut costs and through better practices improve productivity.
A hobby farmer herself, Swales is passionate about boosting Australian farm skills, saying that for a country that fancies itself as the potential food bowl of Asia, «working on a farm is not considered a career in this country».
That is an anomaly that needs to be rectified and, as always, requires some workplace flexibility such as changing the rules on minimum three-hour shifts, which means a big payout on a 90-minute milking session.
The global benchmark is to have three dairy serves a day but in Australia, particularly among teenagers, the average is closer to 1.7 serves, so there is work to be done in getting high-value dairy to customers in Australia, let alone the rest of the world.
Yoghurt in single-serve portable pouches is one way.
Fonterra owns five key brands including Western Star butter, Perfect Italiano, Ski, Mainland and Bega cheeses, and the aim is to improve them and work with retailers to ensure they get to customers.
Product development is one answer, but Swales sees the best way to get the industry moving is to boost supply and from there the processors can get it to market in the most profitable way possible to help everyone.
Marginal stocks
THE stockmarket had its best week since December 2011 but the first week of profit season was only of marginal benefit.
The accompanying table from Macquarie Equities shows a slight upgrade to bank earnings forecasts, thanks to bumper CBA and ANZ numbers showing the oligopoly is working a treat.
Industrial earnings forecast are down a touch but the real story is on the revenue line, with Macquarie strategist Tanya Branwhite noting that 1.5 per cent of industrial company sales are not even matching inflation and are down from the 2.7 per cent gain in the last half.
There are some obvious dogs like mining services but the cost out story is the prevailing theme, and corporate Australia has yet to put its foot on the accelerator to drive top-line growth.
Qantas cuts
DURING the past decade the total return on Sydney Airport shares was 386.9 per cent, on Flight Centre 155.7 per cent and on Qantas -26.7 per cent.
The airline hasn’t paid dividends for the best part of five years and, while the airport’s share price has increased by a factor of three times, Flight Centre has more than doubled and Qantas has fallen from $3.41 to $1.20 a share.
The obvious conclusion from this is the worst part of the industry is the bit that owns and flies the metal and the best is the monopoly airport, but here we go again. Qantas boss Alan Joyce is preparing the ground for some savage cuts to put the airline into a sustainable position and the government is coming to the party superbly.
Qantas reports its latest financial numbers on February 27 — a record circa $300 million loss. The company is a master at talking up the gloom to prepare the market for some bad news, and in this case it’s workers who are to expecting the big cuts.
The company will detail exactly how it will cut $2bn in costs, unveil the sale and leaseback of the Brisbane airport facilities, progress on the Melbourne facilities and canvass the potential partial float of the frequent-flyer program.
At the outset it should be stressed that repeal of the Qantas Sale Act should happen immediately, but if that did happen, it would have zero benefit to the airline. Certainly, Joyce would enjoy the extra flexibility and, in particular, would welcome removal of rules that restricted foreign airlines from owning more than 35 per cent of Qantas and any one foreigner owning more than 25 per cent of the company.
If this were cut, the Air Navigation Act would still apply, and it imposes a 49 per cent limit on foreign ownership.
There is no way the government will change this because that would simply open the door for all foreigners to set up base in Australia.
Tony Abbott didn’t go as far as Joe Hockey, who is floating the concept of guaranteeing new Qantas debt.
Joyce is convinced the previous government would have given him this much and former transport minister Anthony Albanese went very close to this in a letter supporting Qantas, which was published in this paper last November.
In effect, the debt guarantee would help Qantas to regain a credit rating. If so, that is a clear benefit the federal government is giving Qantas, a benefit that a long list of companies would want, starting with Virgin.
The Treasurer has ruled out any changes to the approval granted by the former government to the Virgin structure, which uses a holding company structure to get around the Air Navigation Act, even with three foreign carriers controlling 67 per cent of the airline and another foreigner in Richard Branson owning 10 per cent.
The trouble with government handouts, as Hockey has said so eloquently in the past, is once you let someone into the pig trough they all want their feed.
Source: The Australian
