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Fonterra - time to support New Zealand’s largest company!

After recently attending a presentation by Mark Townsend to rural professionals, I was prompted to think about Fonterra, a large and key player in not only the rural, but New Zealand's total economy.

It is always easy to find fault; to criticise and suggest that Fonterra is too big, no longer caring and has lost its co-operative feeling. While many may find fault, we are all co-dependent on its continued success. As I tell my team in the office, if you are criticising somebody behind their back it then becomes very difficult to feel good about them when you next have dealings. It's the same with Fonterra. Yes, the CEO is paid a lot, and yes there may be some leakage but, by and large I am sure they are all doing their very best to run this giant of a company.

For Fonterra, perception is reality. If the suppliers perceive they are neglected, uninformed and out of touch, that is the reality. It is clear that Fonterra, through their field reps, has some work to do here. I believe there is no point trying to get a 4% productivity gain when many farmers are ceasing supply to look at other options.

Dairy farmers are lucky in that Fonterra collects our milk (almost under any circumstances); they then process our milk and pay us every month. In other words they run our business for us. We only have to run the farm and collect the milk. In most other businesses you do the work, run your business, sell your product or service, send out the bill and hope to get paid. There is a big difference. I've seen people sell their dairy farm and go into business not realising how difficult it can be.

Outlook

In my opinion the outlook for dairying looks fantastic. All Japanese dairy farmers are multimillionaires and it could yet happen here.

The world remains in a commodity boom with strong demand across products. 95% of the world's dairy production is based on grain feed. As the producers of biofuel compete for this commodity, grain prices are up.

As the world gets wealthier, and it is, the demand by developing countries is for protein: meat, eggs and dairy products. New Zealand produces about 40% of the tradeable production in the world. Most other countries consume what they produce and more, but not us kiwis. This gives Fonterra a world market edge with so much of the tradeable dairy products being produced here in New Zealand.

The world consumption for dairy products is changing. The poorer nations were once happy with powders and poor quality water, with obvious results. The demand now is for fresh milk. Unfortunately in this instance, the one thing that makes New Zealand unique also works against us, as the markets are too far away to supply. We have also got Britain and Europe talking of food miles which is of concern.

The payout options are looking strong to very strong. For our part, we need to hold our costs on farm and try to drive as much margin or profit into our business.

Summary

I have tried to take a positive spin on Fonterra. It's a huge business which must be very difficult to run. We, I say that advisedly as a NZDC supplier for 10 years, need to find the good parts about the company. We need to talk positively and support Fonterra. We need to understand that our own perception is our reality but maybe there is another, better view. And yes, from the supplier's perception, Fonterra has a lot of work to do.

It is important to note that Fonterra has not paid me to write a positive spin on their company. Rather I have written this article because in a situation like this, we should remember it's always easier to find fault than be objective.


 

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