Why farmers are whooping a hurrah for Hurrell (and why the rest of the country should be cheering too)

New Zealand’s giant dairy co-op, Fonterra, is back in its leadership role  in the  country’s  key  export  industry, feeding  a  revival  of  optimism among its 10,000  farmer-owners  as  it  reports a  “positive”  half year  result  alongside a  strong forecast  farmgate milk price.

Fonterra  CEO  Miles  Hurrell summed  it  up  neatly when he said :

“Despite  the major impact Covid is having around the  world…it’s  during these times you really can see  what makes our co-op special”.

  Hurrell  himself  can take a  fair chunk  of the  credit  for turning  the co-op’s fortunes around,  after the previous  executive regime cost it  billions.

He  said  the  co-op  had a “great” first half. Although revenue was down slightly to under $10 billion, earnings from China rose  by  more than a third.

“Our standout performer continues to be Greater China. EBIT from China rose 38%  to $339m, reflecting the strength of our foodservice business, improvements in consumer business, and China’s strong economic recovery following the initial impact of Covid-19”.

Total group normalised EBIT was $684m, with normalised profit after tax  of $418m— and an interim dividend  has been declared of 5c.

Hurrell says Fonterra is pleased  with its reported after-tax profit of $391m.

“While  down on this time  last year at a headline level, the previous year benefited significantly  from the divestments of DFE Pharma and  Foodspring”.

As  part of its  continuous review of its asset portfolio, the  co-op  has decided to undertake a  sales process for the  JV farms  in China. Hurrell  says the decision to sell  these farms is in line with the co-op’s strategy to focus on NZ milk.

It has  also continued  to reduce  its investment in Beingmate,  which  is now down to 2.82%.

Fonterra’s  sales  book is  well contracted  but  Hurrell says that, as a  result of some small shipping delays, the product inventory is  higher than  it was this time  last year.  This means the investment in  working  capital is also higher.

“By the  end of the financial year we expect this to be back to more  normal levels  as we have confidence in  our supply chain to get product, already contracted, delivered  to customers”.

Hurrell  says   NZ  dairy is  proving  to be  resilient  in a Covid-19  world.

“It’s a staple in people’s diets around the world and demand is strong.

“Despite a  strong first half  we are expecting our earnings performance to come under  significant pressure  in the second half. The strong milk price is great  for farmers. It’s good for  NZ too —with a  mid-point range of $7.60, it would see us contribute   more than $11.5bn  to the NZ economy.  However  increasing  raw milk prices put a lot of pressure on our sales margins and this  will be seen through the second  half of the year”.

Fonterra’s farmer-owners, however, understand that outcome: that’s  why  they defend  the  co-op structure, although  some outsiders  believe global  investors  would  be queuing for  a stake  if   they  could  get it.

Meanwhile farmer-shareholders  are relishing the  achievement of  Hurrell  and  his  executive team  in getting Fonterra  back  on  track—as  well as offering the  prospect  of a close-to-record  payout.

The  rest  of the  country, particularly  those   who  damaged  industry  morale with  their  “dirty dairying” label, should welcome the co-op’s performance, too

It’s another piece of Fonterra’s outstanding  work under  Hurrell’s leadership that the  industry is reducing  its environmental footprint.  Fonterra  has  worked  with farmers  to develop farm environment plans and 42% of supplying farms  now have one.  Hurrell says they are well on the way  to the target of 100% by 2025.

Moreover  Fonterra  is expanding a promising plantain trial  to  improve waterways  and is  testing  whether a  new feed  additive  can reduce   methane emissions.

This  is  the kind of  work that  confirms  Fonterra’s  foundation  role  in the  dairy industry—and in the  NZ economy.

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