Good old days in Oz over

The co-op describes Australia as a ‘home market’ but major Australian supermarkets view Fonterra as foreign-owned. Fonterra’s profits don’t end up with Australian farmers, they trickle back over the ditch to 10,500 New Zealand farmers.

Supermarket giants Woolworths and Coles have consumers on side by selling fresh milk at $1/L. To appease farmers. crying foul over dipping farmgate prices. the supermarkets are looking at direct deals with processors.

But they are picking Australian-owned co-ops. Murray Goulburn recently signed a 10-year fresh milk supply deal with Coles, replacing Japanese-owned Lion as the supplier. Woolworths is trialling a scheme of direct price negotiations with a group of farmers in the Manning Valley, on the New South Wales mid-north coast, who will sell milk directly to the supermarket giant under the ‘Farmers’ Own’ label.

Where does this leave Fonterra? While the co-op is not a fresh milk trader in Australia, it rules the consumer dairy brands markets. But it’s facing intense competition here. The supermarkets are pushing their private labels, putting a squeeze on Fonterra’s brands. 

Fonterra is facing a double whammy: competition at the farmgate for milk with Australian co-ops, and taking on the supermarkets in the retail sector.

It’s clear that international might hasn’t helped Fonterra and Kirin take on Australia’s supermarkets. It’s time for a change in strategy.

Last week Fonterra announced a new managing director for Australia - Judith Swales. Credited with leading successful turnarounds and generating extremely strong business results, Swales will be asked to further her impressive track record in retail, sales, marketing and manufacturing by turning Fonterra around.

She has a tough task. Lifting returns and reducing brands – and possibly shutting down factories – are on the agenda. She accepts the Australian food manufacturing sector is facing some tough challenges. And it’s also time for Fonterra to make tough decisions.

The co-op has 14% of its total group assets in Australia, and its cheeses, butter and dairy desserts may be favoured by consumers, but being a foreign-owned dairy processor in Australia is working against it. And the bad news is the competition is likely to get even stronger as the supermarkets tighten their stranglehold on the food sector.