Comforting news for dairy farmers as companies report results and the world price rises again

Encouraging signs emerged this week that key elements in the structure of NZ’s largest export industry are whipping themselves back into the shape they should be.

The giant  co-op  Fonterra  has  gone back  into the  black  with a net profit of $80 million in the  first half,  after previously recording  a  net  loss of  $186m.

Meanwhile Westland Milk Products, NZ’s second biggest dairy co-op, is in line to be  sold  to China’s biggest  dairy company,  Yili,  in  a $588m  transaction that would inject nearly half a million  dollars into the operations of  each  of its  suppliers.

Alongside these co-ops, the Canterbury-based Synlait has underlined its strength in the  industry with a  solid result in  its half-year after  achieving   higher sales  volumes.  It reported a half-year net profit of $37.3m,  9.6%  lower  than   the  $41.3m  in the previous first   half,  but  with the  focus  on investing for  growth,  with a  second processing  plant due  to come on stream for  the  2019-20 season. Continue reading “Comforting news for dairy farmers as companies report results and the world price rises again”

Something festive for Fonterra farmers? A hint of solace would be a start…

Fonterra’s  suppliers will be choking on their  Xmas  rations, as they  digest the  price  blows  the co-op  has delivered.  First,  the dairy giant has  revised down  its  forecast milk payout  range  for the season to $6-$6.30 from the  earlier  $6.25-$6.50, and, second,  it is clawing back  some of the $4.15/kg  advance payment  rate.

Farmers  in  January will be paid  $4/kg for the  milk they supplied in  December plus the  co-op  is  clawing  back  15c/kg for all the  milk  supplied   between  June and November.

It  is  not   surprising that farmers   with  costs of  production  running   at  or above  $6/kg  are  reported to  be  “shocked”  and  “angry”.   Even those  efficient  operators   who have  lower  operating costs  won’t be happy  with   Fonterra  saying it  “appreciates”  the budgeting impact  the updated $4 advance rate will have on farmers in  January.     Continue reading “Something festive for Fonterra farmers? A hint of solace would be a start…”

Fonterra must learn to be driven by  profitability, not  volume 

Fonterra  chairman  John Monaghan  sought to   cheer  up  the  co-op’s farmer-shareholders  by telling them  at what was reported to be a “packed” annual  meeting  that  “For a time this year, NZ farmers were paid this highest milk prices in the world.”

He  insisted there has been a structural change in  the co-op’s milk prices since Fonterra was formed.

We’ve gone from being paid about half as much as our global peers to the point now where we are consistently paid the same or thereabouts.It sounds arrogant to say it, but the fact is that simply never would have happened without a strong Fonterra”. Continue reading “Fonterra must learn to be driven by  profitability, not  volume “

The grass on the far side of the fence will look much greener for Fonterra farmers

It  must have felt  like  salt being rubbed into  their  financial wounds   for Fonterra’s farmer-shareholders, when Synlait  Milk this week  reported  its  net profit  soared  89%  to  $74.6m.   Fonterra’s  mob   saw  their  co-op  notch  up  a  loss of  $196m, and  with prices  at GDT auctions trending down,  they may also have to accept a trim  to the forecast milk price.

Where  Fonterra  talks of   slimming its  portfolio,  Synlait  is still investing  in expansion.

In the latest year Synlait has been working on new and expanded plants in Dunsandel, Auckland and Pokeno as well as a research and development centre in Palmerston North. Continue reading “The grass on the far side of the fence will look much greener for Fonterra farmers”

Plenty of advice for Fonterra’s bosses – but are our expectations too high?

Dairy farmers  should be pleased with the  advice  liberally and freely tendered to Fonterra in the wake of the co-op’s board deciding to halt its international  search for a  new  CEO and instead,  with an  interim CEO,  Miles Hurrell, “pause and  assess  the  way   ahead”.

Fran  O’Sullivan,  Head of Business at NZME,  which publishes the  NZ  Herald, says appointing an interim chief executive to run New Zealand’s largest company is an admission of failure that should force Fonterra’s board to look hard at its own performance.  And she  concludes:

If this company is to succeed, it needs to be governed and led by grown-ups within a grown-up NZ commercial environment”.

Continue reading “Plenty of advice for Fonterra’s bosses – but are our expectations too high?”

A flow of “fresh air” – here’s hoping Fonterra’ s financial performance gets a good whiff

Fonterra’s  latest move, appointing Miles Hurrell as interim CEO  “with immediate  effect”, has   sent  fresh rumbles  through the  dairy industry.

The  co-op’s  chairman John Monaghan, announcing the move,  spoke of the need  to  “breathe  some fresh  air  into the business”.

He is  not alone with this observation:  several  politicians  have been calling for just that – but  many of the  co-op’s 10,500 farmer-suppliers may be wondering  what exactly  a  blast of   “fresh air”  may do.

Whatever Fonterra does is important  not only  for the farmers,  but also for the  country, because  the co-operative is the only  NZ business  which can  be truly  labelled  a  multinational. It is the country’s biggest  exporter and has  20,000 employees worldwide.

Fonterra   was  already  undertaking a  global  search for a successor  to Theo Spierings  as  CEO,  who  was  due to leave the  post in November.   He will  now leave on  September  1.

Hurrell, who has been with the company since 2000, is currently chief operating officer of Fonterra’s Farm Source unit, which is responsible for working directly with its roughly 10,500 farmer-owners.

Monaghan, who himself took over as chairman only last month, said it was not best practice to have the chairman and CEO stand down at the same time, but events have overtaken that decision.

“I have agreed with the Board that we will stop the global CEO search while we review the co-operative’s current portfolio and direction. It’s important that we give ourselves the time to take stock of where we are as a co-operative, breathe some fresh air into the business, then determine any changes that are needed. Appointing a new CEO is the most critical decision a board will make. We will take all the time we need to find the right person.”

Monaghan said in the meantime, Fonterra needed a new leader who could hit the ground running and Hurrell had the experience, intellect and commitment to do that.

Fonterra has faced criticism about not disclosing the illness of former  chairman John Wilson, who  stepped  down  last  month, as well as – more fundamentally – on its financial performance.  On Monday, the dairy processor and exporter dropped  its forecast  payout  to  its suppliers and said it was unlikely to pay a final dividend.

Federated  Farmers’ spokesman Andrew Hoggard says the timing of the announcement is “rather strange” because Fonterra must be close to choosing a permanent head.

He said he lacks an in-depth understanding of Hurrell’s skills.

All I know is he’s very approachable, I’ve never heard him say anything stupid. He’s a safe pair of hands.”

Hurrell,  who is  44,  has been with the co-op  since  2000.  As Chief Operating Officer at Farm Source, he has been responsible for Fonterra’s global farming strategy that includes farmer services and engagement, milk sourcing and the chain of 70 Farm Source™ rural retail stores throughout NZ.

Monaghan  insists appointing a new CEO is the most critical decision a board will make.

We will take all the time we need to find the right person.In the meantime, we need a new leader that can hit the ground running.

“Miles has great mana. He has a deep understanding of our business and has demonstrated his ability to manage large, complex business units in most of our global markets.

“Miles is well-respected both within our co-op and by our key global customers and wider stakeholders”

But critics may find it odd that Monaghan further says:

Our CEO role requires intellect, energy and commitment. Miles brings that in spades.”

Those who toil in the sheds could  think  this goes without   saying —- especially  as the departing CEO  received   $8.3m  in  remuneration.

Hurrell is quoted  as  saying Spierings

“ … leaves behind a talented leadership team that includes some of the best minds in global dairy. I’ve been privileged to be part of that group for the last four years and I’m totally confident that, by working as a team, we can deliver on the expectations New Zealand has of us”.

But, significantly, he added:  “As a group, we haven’t always got everything right”.

Would that  be the  dud investment  in   Beingmate?   Or the slow  progress  in  adding value?  And what else?

Certainly   some  analysts contrast  the plodding  performance of  Fonterra   with the spectacular results  achieved   by  relative  newcomers  in the industry, such as Synlait  and  A2 Milk.  Others   see  the  culture   in  Fonterra’s  HQ   as  “dour”.

If   Fonterra  needs   more oxygen  at  the top, as Monaghan seems  to  suggest,  it is  not the  only  corporate  in NZ  with this problem.  Fletcher Building  has been   through the same treatment.

With  the  government   reviewing  the  legislation  governing  the  dairy industry, it is   a critical year  for  the giant co-op.

Monaghan  says  Spierings  has   led the co-op   through  a period of great change and  “some real challenges”.

But the latest  move  suggests  not all  of those  challenges  have been met.

The fiercely  loyal  farmer-suppliers  will be  looking  to the board to  suck in  that  “fresh air”  and  crack the whip  a bit more vigorously.  They — and NZ — need  Fonterra to be  the global leader it aspires to be.

UPDATE:  Investors have reacted positively to news of fresh air being pumped into Fonterra.  The share price on the NZX started the day at $4.81.  At noon it was $4.85.