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.
An efficient New Zealand manufacturing base, diversified markets and a global supply chain helped Fonterra stay ahead of the game during the pandemic.
So said chief executive Miles Hurrell at the co-operative's annual general meeting in Invercargill last week. He claims that, as a result, Fonterra got its balance sheet into a healthier position and can now look more to the future.
"As an intergenerational business, that's incredibly important," says Hurrell.
"We leaned on a number of the co-op's strengths to get us to this position.
"And these strengths have been invaluable as we've faced into the challenges and flow-on effects of Covid."
Hurrell says the NZ manufacturing network and team provided a huge amount of optionality in terms of the products they can make.
"Our people are focused on driving efficiency and improving performance at each of our plants. This continuous improvement creates more value, which flows through into the farmgate milk price."
He claims another huge asset is the co-op's diversification across channels and markets.
Hurrell noted that last year, volumes and earnings were "more or less evenly split" across three regions (Asia/Pacific, Africa/Middle East and Greater China) and three channels (ingredients, food service and consumer).
"This diversification allows us to allocate milk into the products and markets that generate the best overall returns for the co-op," he explained.
In 2021, Fonterra allocated 15% more milk into Greater China and 6% less into Africa/Middle East.
"We did this because that's where demand was the strongest."
Hurrell says Fonterra's third strength is its global supply chain - including Kotahi, a joint venture with Silver Fern Farms.
"It's because of our scale that Kotahi could partner with Maersk shipping line and the Port of Tauranga. And it's because of this partnership that our co-op could continue to get product to our customers last year," he notes.
"With all the disruptions to the global supply chain, this was something our customers didn't take for granted and we saw this reflected in both milk price and earnings."
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