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Fonterra is renewing contracts for some of its organic dairy farmers in the middle and lower North Island, following a turnaround in its niche organics business.
Managing director fonterra nutrition, Sarah Kennedy, said the cooperative has worked hard over the past 18 months to return its organics business to profitability.
"Eighteen months ago we were losing money so we restructured the business to focus on markets in Asia, while also reducing our costs to ensure on-going profitability," Kennedy says. "We reduced transport costs by concentrating organic milk supply in the central and lower North Island.
"Our focus on Asia has also paid off with higher premiums for organic ingredients and increasing demand, mostly out of China.
"Based on this turnaround, we are now able to renew contracts for farmers in the middle and lower North Island who have contracts expiring this year. The remainder of our organic suppliers in these regions have between 1-2 years left in their existing contracts with us.
"We want to ensure we build a business that is sustainable. With that in mind, we are conducting a thorough review to ensure we have the right business model to cope with volatile markets and will come back to our farmers early next year.
"We know our farmers are looking for certainty but it's critical we get this right for the long-term benefit of the whole cooperative."
The organics plans outlined to farmers today mean:
• Farmers currently supplying organic milk in Manawatu, Taranaki and Wairarapa, who have contracts expiring in FY13, will have them renewed for a further two year term.
• Farmers currently supplying organic milk in the Waikato and Bay of Plenty, who have contracts expiring in FY13, will have them renewed for a further three year term.
• Fonterra will continue to concentrate organic milk supply in the middle and lower North Island, meaning Northland suppliers will not have their contracts renewed.
• Fonterra will update farmers who have contracts expiring in FY14 and FY15 by early next year.
Fonterra is meeting with farmers in Northland, Waikato, Manawatu and Taranaki over the next two days to provide a full update on its organics operations.
OPINION: There is zero chance that someone who joined Fonterra as a lobbyist, then served as a general manager of Fonterra's nutrient management programme, and sat on the board of Export NZ, a division of lobbyist group Business New Zealand, doesn't understand that local butter (and milk and cheese) prices are set by the international commodity price.
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