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.
The co-operative's 70 organic suppliers have been told to expect a $9 payout for the 2020-21 season that has just ended.</p.
In an email, Fonterra chief executive Miles Hurrell told farmers that globally, consumer demand for natural, healthy, sustainable products continues to drive growth in organic dairy.
"However, despite the increasing demand, organic milk supply globally remains in surplus and this is negatively impacting global prices," he says.
In addition, Covid-19 continues to impact some Fonterra customers.
Hurrell says while Fonterra can still get products to these customers, the disruption they are experiencing in their supply chains means the co-operative is seeing less demand from them for organic ingredients.
"This is particularly the case for our Australian based customers that export to China.
"As they put their energy into keeping their businesses running, they also have a reduced appetite to drive new product development."
Hurrell says these supply and demand dynamics are flowing through to its opening 2021-22 forecast organic milk price - $8.10 - $9.10/kgMS range, with a midpoint of $8.60/kgMS.
Fonterra's organic payout for 2020-21 has narrowed to $8.90 - $9.10/kgMS with a midpoint of $9/kgMS. It had opened the 2020-21 season with a $8.50-$9/kgMS range.
All of Fonterra's organic ingredients and consumer products are made in the North Island from North Island supply.
Its key sales regions are the US, Australa, South Korea, New Zealand, China & SEA, India, South America, & Taiwan.
Fonterra's organic $10.19/kgMS payout for organic milk last year is a record price for cow milk in New Zealand.
Last month, Fonterra announced an opening forecast farmgate conventional milk price range og $7.25-$8.75/kgMS - a record opening forecast.
Hurrell says that the improving global economic environment and strong demand for dairy, relative to supply, are sitting behind the co-op's $8 midpoint.
Global demand for dairy, especially New Zealand dairy, is continuing to grow. China is leading the charge as its economy continues to recover strongly.
Hurrell says, prompted by Covid-19, people are seeking the health benefits of milk and customers want to secure their supply of New Zealanddairy products and ingredients.
