Fonterra will announce changes to its strategy next week to arm the company against a “new era of global competition, not cooperation”.

The dairy cooperative has navigated a tough year, announcing yesterday a drop in profit and the total payout to farmers.

In July this year Federated Farmers reported just 38% of dairy farms were making a profit, with 41% breaking even, and 21% making a loss – and Fonterra’s total payout to farmers had also decreased to $8.38 per kg of milk solids this year, compared with $9.22 last year, even though this year’s result included a higher dividend of 55c.

But the payout surpassed the estimated breakeven price calculated for the average dairy farm of $8.01 by Dairy NZ for the financial year.

Meanwhile, Fonterra’s forecast for the coming year seemed better – with its farmgate price coming in at between $8.25 and $9.75 per kgMS, as opposed to this year’s $7.83 per kgMS.

“I’m pleased to be announcing an increase in this season’s forecast Farmgate Milk Price, which I’m sure will be welcome news for farmers, particularly when combined with the 55 cent total dividend for 2024 financial year also announced by the co-op today,” said chief executive Miles Hurrell.

The forecast increase reflected a strengthening in global dairy prices, Hurrell said, and constrained milk supply in key producing regions.

And, after several years of strong earnings, the co-operative had exhausted its tax losses, and would now be paying tax.

Fonterra was bouyant about its opportunities in China, where McBride said the company was “on the up” as milk powder stocks were depleted, and high production costs were resulting in Chinese milk production starting to drop, and a cull of loss-making Chinese cows take place.

Fonterra had previously focused on the Eastern seaboard of China, but had now opened an office in Wuhan to break into other areas.

But the company was seeking to jettison some other parts of the business that were not aligned with its new strategy, which it would be announcing next week. Hurrell described it as “more than a tweak, but not radical”.

In May 2024, Fonterra had said it would explore options to divest its global Consumer business, as well as Fonterra Oceania and Sri Lanka, with divestment of the consumer business having been part of a two-decade long conversation at the company.

“During [the 2024 financial year] we received unsolicited interest in parts of these businesses that formed one of the catalysts for a wider strategic review. The world has changed. We have entered a new era of global competition, not cooperation. It’s a more expensive, competitive and volatile world where customer expectations are evolving, and New Zealand milk and capital are becoming scarcer.”

It has already started the process of streamlining its portfolio, with $804m returned to to shareholders and unitholders following the sale of its South American Soprole business last year.

The sale of the consumer business and others would leave a much less diversified Fonterra, Hurrell admitted.

Chairperson Peter McBride said the strategic review had clarified the parts of the business that generated the greatest returns for farmers “today, and highlighted where we see further headroom for growth.”

Fonterra’s ingredients and foodservice businesses, which are suppliers to food manufacturers here and overseas, and the likes of cafes and restaurants, are key growth planks for the company.

Hurrell said he envisioned Fonterra’s foodservice and ingredients businesses expanding into smaller Chinese cities, which are still large in New Zealand terms.

Fonterra also announced some progress in its journey to wean itself off coal and reduce emissions, with the help of the taxpayer.

The co-op is aiming to reduce its direct emissions by 50.4% by 2030 from a 2018 baseline, and has so far managed 18.5% reduction, but it has big investments coming in shifting some of its milk-processing factories away from coal to use lower-emitting wood pellets.

It expects to cease using coal in the North Island later this year, but it will persist in the South Island until 2037.

It has also begun to work with farmers on reducing on-farm emissions, and forecast that by 2028, nearly 80% of its suppliers and customers would have “science-based” emissions reduction targets.

Fonterra had partnered with Nestle to provide bonuses to farmers who managed to achieve Fonterra’s internal “The Co-operative Difference” designation. So far 858 of its 8241 farmer-suppliers had reached Te Tihi status, translated as the “summit of the mountain”.

But not everyone is so convinced of Fonterra green moves. Greenpeace Aotearoa accused Fonterra of ‘profiting from rainforest destruction’.

Greenpeace spokesperson Sinéad Deighton-O’Flynn said: “Fonterra has been relying on rainforest-destroying palm kernel to feed the bloated dairy herd, because there are simply too many cows, and not enough grass to feed them.“

Fonterra has been caught by Australian modern slavery reporting laws, and issued a modern slavery statement.

While it had operations and suppliers from around the world, including in higher risk industries like sugar, the only identified instance of worker abuse in its last financial year was in New Zealand.

Fonterra ditched a farmer who had exploited three migrant workers, its report said.

You can now read the most important #news on #eDairyNews #Whatsapp channels!!!

🇺🇸 eDairy News INGLÊS: https://whatsapp.com/channel/0029VaKsjzGDTkJyIN6hcP1K