Fonterra’s three-way dilemma

[This post was first published in the Fairfax NZ Sunday Star Times on 22 February 2015. It is the fourth of a series of five on Fonterra.  The earlier posts were ‘The evolution of Fonterra’, ‘Fonterra’s jouney’, and ‘Fonterra’s global reach’.]

One of the big challenges for Fonterra has been to determine its overall market position. Is it a marketer of commodities? Or is it a marketer of fast moving consumer goods (fmcgs)? Or is it a marketer of specialist ingredients? Can it be all three?

The challenge of trying to be all three is that the appropriate business culture is different for each market positioning. Commodity marketing is all about logistics, efficiency, and financial discipline. Fmcgs are all about entrepreneurship, creation of brands, being fast on one’s feet, and willingness to take risks. Specialised ingredients require a focus on science and technology.

Very few companies succeed in being more than one of these. So where does Fonterra sit and where should it sit? Continue reading

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Fonterra’s global reach

[This is the third of five articles on Fonterra written in early 2015 and published in the Fairfax NZ Sunday Star Times. This one was published on 15 February 2015. Earlier articles in the series were titled ‘The evolution of Fonterra’ and ‘Fonterra’s Journey’ ]

Within Fonterra, there is inevitable tension as to its role on the global stage. From a farmer perspective, Fonterra is a business with assets of about $20 billion (about half equity and half debt) which processes the milk produced by five million New Zealand cows. It then markets the resultant dairy products across the world.

Most of the value of these dairy products lies in the farm gate price of the milksolids contained therein. Accordingly, ask any of Fonterra’s farmer owners as to what they most expect and demand of Fonterra, it is likely to be that this farm gate price is maximised. Continue reading

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Fonterra’s journey

[This is the second of five articles on Fonterra that I have been writing for the Fairfax NZ Sunday Star Times. This one was published on 8 February 2015. The previous article was titled ‘The evolution of Fonterra’ ]

Last week I wrote about the battles that led to the formation of Fonterra in 2001. However, Fonterra’s structure and associated institutional culture have moved a long way since then.

Sufficient time has elapsed since Fonterra’s formation battles that they can now be seen in reasonable perspective. But subsequent events are still raw. In line with corporate policy, the participants have largely kept their opinions private, and the official line is a product of the public relations team. However, in a co-operative structure, it is inevitable that information does leak. One thing for sure, is that some of the internal debates have been vigorous. Continue reading

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The evolution of Fonterra

[This is the first of a series of five articles on Fonterra that I have been writing for the Fairfax NZ Sunday Star Times. This one was published on 1 February 2015.]

It is now a little more than 13 years since Fonterra was formed. In that time, all of the foundation directors have moved on. There have also been three Chief Executive officers (CEOs) and at least four Chief Financial Officers. None of the current top level management team that reports to the CEO were there at the start.

Fonterra itself is a very different company to those early days. It started off as a traditional co-operative, in which members owned shares in proportion to their production. These shares were purchased directly from the co-operative at a price which the co-operative determined. If a farmer ceased production, then the shares were sold back to the co-operative at the current buy/sell price as determined by Fonterra. Given that production and ownership were aligned, any apportionment between what was paid for the milk and what was paid as a dividend on invested capital, was of no material consequence. Continue reading

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The winding path for agri-food

[ This post was first published in the Fairfax NZ Sunday Star Times on 21 December 2014]

With another year winding down, it is time to reflect on how well the agri-food industries have been travelling, and to look forward to what the next twelve months might bring.

2014 will be the remembered as the year that the dairy industry started on the super highway but then hit a pot hole. Many in the industry expected a slow-down, but most have been surprised by the depth of the hole. It is also the year when the dairy industry began to recognise the full extent of the nitrogen leaching challenge. Continue reading

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Generating wealth from dairy

[This post was first published in the Fairfax NZ Sunday Star Times on 14 December 2014]

The current dairy downturn is inevitably turning attention to the wisdom of having so many eggs in the same basket. When times look rough, it can be helpful to look back and remind ourselves of the journey we have travelled to get where we are.

The driving forces that have led to the present have had very little to do with industry policy. Rather, the outcomes we are now experiencing are the consequence of thousands of individual farmers and rural investors deciding that dairy was where the profits lay. And to a large extent they got it right. Continue reading

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Small dairy farms can still be profitable

[This post was first published in the Fairfax NZ Sunday Star Times on 7 December 2014]

Last week I wrote about the changing scale of dairying. Farms are getting bigger and they will continue to do so, driven by the combined power of scale and financial leverage.

Unfortunately the title I supplied for that article (‘The changing scale of dairy’) was changed in the Sunday Star Times to ‘Dairy is all about scale’. This title implied that there was no future for small dairy farms. However, those of us working with farmers know that small farms can indeed be profitable, and there are many factors other than scale that influence that profitability. Continue reading

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