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-op says sustainability on farm is a fundamental requirement for most of its customers now.
In an email to farmer shareholders last week, Fonterra chief executive Miles Hurrell said many of its key customers have sustainability requirements “that we must meet and improve upon, and they regularly check up on us”.
“Collectively these customers represent over $2 billion in revenue annually and it’s estimated that approximately $300 million could be at risk if we do not meet their expectations.”
Hurrell made the comments as he announced a new milk payment linked to higher quality milk from supplying farms.
The new maximum payment of 10c/kgMS will be paid from the next season to farms meeting the co-op’s on-farm sustainability and value targets.
Presently, Fonterra farmers producing milk with lower somatic cell counts receive Farm Source dollars that can be redeemed at its stores. The new payment replaces Farm Source dollars and will be funded out of the farmgate milk price.
“The total farmgate milk price will remain the same across the cooperative, but the amount that each individual farm is paid will vary depending on their contribution,” says Hurrell.
“We’ve always paid our farmers based on the value that milk provides to the cooperative. The reality is that the drivers of value are changing, and we need to reflect that. Our customers want to know that the products they are buying are not only safe, but also produced sustainably.
“This payment helps us meet the changing needs of our customers, so they continue to choose our milk and enjoy dairy as a sustainable and nutritious choice.”
Hurrell says Fonterra is now seeing customers from across the globe requiring it to not only meet and improve upon their requirements, but also provide proof of completion.
“The risk is that these customers will move to competitors if they can demonstrate better performance, or a substitute for non-dairy products with lower footprints,” he says.
Nestlé spokesman Robert Erhard says at the world’s largest dairy company, how milk is produced matters.
“Now more than ever, people expect farmers to act as good stewards of the land – safeguarding the climate, enhancing animal welfare and carefully managing water and the health of soils.”
Northland farmer Terence Brocx says farmers put in a lot of effort to produce the best quality milk possible.
“Over recent years, large numbers of farmers have spent a significant amount of time and money to improve their local environment and waterways to make their farms sustainable for the future.
“It’s great to see these farmers distinguished and rewarded for their efforts to produce and deliver a product that Fonterra can capture the highest value from,” says Brocx.
