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.
In the co-op's annual report released last week, McBride noted that while the co-op’s strong foundations gave the board great confidence, it must continue as a strong co-op of scale to be successful.
McBride pointed out that Fonterra’s full year NZ milk collections in FY24 were 1.47 billion kgMS, down from 1.48b kgMS in FY23.
“That is consistent with the trend in New Zealand milk volumes that we expect to continue for the foreseeable future,” he says.
He pointed out that the co-op’s scale is one of its greatest strengths and warned that there would be a significant impact on milk prices if Fonterra lost its scale and the cost efficiencies that come with it.
“At the moment, our milk retention teams are competing with one arm tied behind their backs,” says McBride.
“The co-op needs to think about milk retention differently and be open to giving the team more tools to support win backs and retention.
“It’s in our interests to maintain a strong co-op of scale and we look forward to continuing these conversations within the co-op as we close out the calendar year.”
He says the co-op is in good heart and will be able to execute on strategy in FY25 and beyond.
“Our consistent underlying financial performance gives the board the confidence to announce a final dividend of 25 cents, which combined with the interim dividend of 15 cents paid earlier in the year, which is at the top end of our payout ratio of 40-60% of net earnings.
“In recognition of the co-op’s capital management and continued balance sheet strength, for the 2024 financial year we are also pleased to pay an additional dividend of 15c/ share.”
McBride noted that the co-op had made further improvements to the FY25 schedule, increasing the advance rate - with the December paid January payment now 85%, up from 75%, and stepping up across the rest of the season.
“The objective of the uplift in advance rate schedule is to deliver cash back to farmers as quickly as possible.
“Any dividend decisions are still at the discretion of the board and will be made in-line with our desire to maintain Fonterra’s “A” band credit rating.”
