NZ dairy exporter Fonterra aims to lift profits after tough year

It has been a tough start to the year for the world’s biggest dairy exporter, New Zealand monopoly co-operative Fonterra.
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Early this month, the $NZ11 billion ($10.7bn) company, which ranks as New Zealand’s biggest, became the target of an eco-terror scare, with an unknown blackmailer threatening to poison its lucrative baby milk formula exports unless local politicians banned the use of 1080 poison to kill possums in forestry plantations.
This week, the company reported another round of disappointing half-yearly ­financial results, immediately pushing Fonterra’s listed-units down 8 per cent. While Fonterra’s ownership remains with farmers, the units give outside investors exposure Fonterra’s performance.
Despite forecasts of a 16 per cent profit plunge for 2014-15, a 14 per cent revenue fall, a high and climbing 50 per cent debt-to-equity ratio and continuing low milk prices paid to Fonterra’s 10,600 unhappy farmer-owners, chief executive Theo Spierings remained upbeat.

He spoke repeatedly to journalists of the need to “turn the wheel” harder to extract better performance than its $NZ183 million interim after-tax profit, of volatile world markets and of long-term plans to build a global co-operative.
Yesterday in her office overlooking Auckland Harbour, Fonterra’s managing director of strategy, people and culture, Maury Leyland, was blunter and more explicit. “We have to get the most out of every bucket of milk we process,” said Leyland, a former NZ America’s Cup yacht designer, marine engineer and consultant. “And that means more than we are now.”
But Leyland is determined the body-blow of this week’s shock results won’t see Fonterra retreating into its shell.
It is equally non-negotiable that Fonterra, formed in 2001 from the merger of NZ’s two largest farmer-owned dairy businesses and the government’s New Zealand Dairy Board — which has its export monopoly protected by an act of Parliament — will stay a co-operative.
So, too, its global base and its cultural core will always remain in New Zealand, says Leyland.
Apart from those two fixed principles, most of Fonterra’s future priorities for growth revolve around flexibility and nimbleness.
Leyland admits the current high debt levels and low returns to farmers and shareholders — who are both impatient for financial improvement and performance — may mean re­thinking some areas of the business.
“It might mean we do less; but what we then choose to do, we do faster,” she says pragmatically.
But the strategy boss is adamant Fonterra’s key competitive advantage, its unrivalled scale and volume — the co-operative globally now buys 21 billion litres of milk a year from its farmers and provides one-third of world dairy exports worth nearly $NZ20bn — will not be lost or compromised.
Instead, Leyland says it will be full steam ahead for the global dairy behemoth in its new direction, which the company calls its V3 strategy — volume, value and velocity.
But the chief focus is clearly now on the second strand” adding more value to the massive milk pools processed by Fonterra each year in its three main farming supply areas, New Zealand, Australia and Chile, and sold around the world to more than 100 countries.
“Because we are not delivering the returns we want to be getting, we have to increase our focus and velocity and apply a more entrepreneurial spirit to everything we do,” says Leyland.
Leyland says identifying Fonterra as simply the world’s biggest dairy exporter doesn’t tell the full story of how the NZ co-operative has already changed.
Originally its core business was selling the milk produced by NZ farmers as bulk commodities on global markets, helped by its export monopoly ­status.
That was the old era of shipping sacks of milk powder and containers of cheese and butter around the world, all labelled with the old nationalised NZMP stamp — New Zealand Milk Products — without a mention of ­Fonterra.
But those days are long gone.
Bulk export commodities branded as NZMP, offering inherently lower margin returns, now just make up 27 per cent of Fonterra’s revenue. Mr Spierings aims to reduce that contribution to 20 per cent by 2020, not by shrinking the bulk commodity or “ingredients” business but by adding more value and faster growth in other sectors.
Instead, more products will be sold, at higher prices, under Fonterra’s highly successful and well known brands such as Anchor milk, Mainland cheese, Western Star butter and Tip Top ice cream.
It also means revitalising or abolishing non-performing brands — such as Ski yoghurt in Australia — and moving towards high-priced premium brands with recognised nutritional, health or boutique appeal.
Leyland says Fonterra’s purchase in 2013 of debt-ridden Tasmanian gourmet yoghurt maker Tamar Valley Dairy was just such a purchase.
The greater emphasis on branded products is clearly working. In Chile, Sri Lanka, Malaysia and, unsurprisingly, New Zealand, Fonterra dairy brands are market leaders.
Spierings now wants the same achievement in the fast-growing markets of China, Brazil and Indonesia. Also on its radar is Australia, where Fonterra now is the second-biggest processor and supplier of fresh milk, champing at the heels of local co-operative Murray Goulburn.
In Australia, Fonterra last year won a $60m, 10-year contract to supply Woolworths with its private label Select brand milk in Victoria, a strategy being replicated with many other private brand contracts in other countries.
Another new Fonterra focus — and profit centre — is the development of more “nutritional” dairy products, bought by consumers for their health attributes and food safety properties rather than simply cooking ­ingredients.
“There are more products, more partnerships, more brands, more value-adding and more food service focus; they are all the way to add value to a high volume business,” Leyland says.
But linking all these new streams of value-added focus are two underlying ambitions.
One is for Fonterra to grow its total milk supply from 21 billion ­litres to 30 billion litres, a transformation that would make it the world’s biggest dairy processor and dairy food company.
The second is to become a truly global business that makes its best profits from its international breadth and scale, enabling Fonterra to easily and effortless shift different types of dairy products — or even just milk components — between specialist producers, processors and global markets.
Leyland says this exchange is already happening between its European and Chinese “multi-hubs”.
For example, in Europe, Fonterra-linked dairy companies and partners turn local milk into cheese for the high-demand Russian market.
China lies at the heart of most of Fonterra’s expansion aspirations, with its growing middle class and taste for dairy.
It already takes 31 per cent of Fonterra’s output, while Fonterra in turn is China’s largest dairy provider.
Fonterra is also helping develop China’s dairy industry so it is less reliant on imports. Fonterra now owns nine massive barned-cow dairy farms in two hubs in Hebei and Shanxi provinces, with 24,000 milking cows, 25,000 heifers, its own cow breeding program and 150 million litres of quality milk production.
A third group of five new farms is planned, with the goal to produce one billion litres of high quality raw milk in China by 2020.
In addition, Fonterra last year bought 20 per cent of Chinese specialist mother-and-baby company Beingmate to improve access to the lucrative Chinese infant formula market.
 
Source: The Australian
 

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Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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