Fed-up farmers risk to Fonterra
Fonterra is facing a supplier crisis of confidence and risks haemorrhaging milk to private companies as fed-up farmer-shareholders react to its latest financial results.
The co-operative turned in disappointing half -year results, with profit and revenue down on last year, and rocked farmers and the sharemarket with its announcement of a deterioration in the forecast dividend.
The dividend tracks how the business is performing and was widely expected to be fattened or at least held steady, given the low milk price it is paying farmers this season.
Fonterra Shareholders Council chairman Ian Brown confirmed that, like NZ Farmer, he had been told by farmers they were quitting Fonterra, though he thinks the "more appropriate" tone of the general response is that farmers are putting Fonterra "on notice".
Brown said any risk to Fonterra milk supply worried him.
"Any time we lose milk it worries me. More importantly, any time farmers' confidence is undermined it worries me even more because that is longer-term."
Brown said some of his callers had been long-term, loyal co-operative suppliers.
"They probably aren't going to leave, but they're bloody disappointed and want answers."
The half-year result was the tipping point for farmer-shareholders who have been agitating to know how comparatively tiny milk processors which don't require suppliers to buy shares could match or better giant Fonterra's milk price in a tough global market year.
They also want to know when Fonterra is going to show them the money from their multimillion-dollar investments in its added-value business strategy.
It did not escape their notice that Fonterra, in last week's interim financial report, now highlights 2025, 10 years off, as its strategy end-goal.
Fonterra responded in a written statement quoting a spokesperson:
"The incentive of co-operative membership lies in our collective strength, and our strategy and ability to generate the best returns on a sustainable basis long term. Milk growth is fundamental to that. We really value the milk from New Zealand farmers and we are out to secure it."
One of the North Island's recognised most profitable farmers has registered interest to switch supply to Open Country Dairy, the country's second-biggest processor and milk powders exporter. Dave Robertson, of Kaipaki, near Cambridge, said he was "over it" with Fonterra.
"I don't believe what they are saying anymore. They've lost all focus. The company is not owned by farmers, it's totally lost touch."
Fonterra's value-added businesses had produced "nothing", said Robertson, who is lifting milk production over the next two seasons and is about to write a cheque for $40,000 for extra Fonterra shares to cover the new season starting June 1.
Fonterra sheeted all business risk back to its farmers, he said.
Open Country is expected to decide in May or June whether to respond to claimed strong Waikato farmer interest and build a processing plant at Horotiu or expand its Waharoa site.
Well-known North Island agriculture consultant Will Wilson said Fonterra's performance had been "appalling" and two businesses he was involved in as a trustee and shareholder were switching to Open Country Dairy supply next season.
Federated Farmers national dairy chairman Andrew Hoggard said farmers need to put Fonterra leaders on the spot.
"It's time to start asking, does the emperor have a lot of clothes? Something has to change. Every year we hear they can't do this or that 'because of'. There's always a 'because of'.
In Southland, industry talk is that after the result announcement Fonterra farmers kept Open Country Dairy's switchboard busy with inquiries about supply. Open Country, which is understood to have a waiting list of more than 500 farmers between Waikato, Southland and Taranaki, declined to comment.
In the greater Waikato, processor and exporter Miraka is getting two to three inquiries a week about supplying milk, chief executive Richard Wyeth said. The company did not want to increase supply this year, and had experienced a challenging year with lower global milk powder prices, he said.
Canterbury's Synlait Milk declined to comment on what supply inquiries it had received.
Fonterra this week claimed to be collecting 87 per cent of New Zealand's raw milk. When it was created from an industry merger 14 years ago it collected 96 per cent.
Shareholders' council chairman Brown said the council had lengthy discussions with Fonterra directors after the results announcement.
"The result is below our expectations ... we clearly communicated our view of the results to the board.
"They were very receptive to the council's view, they didn't disagree with it. But the ball is in their court to do something about it."
Brown said the second quarter of the half-year results had been better than the first quarter and there was hope the tone would continue. The council's performance committee would monitor monthly reports from the company until the end of the financial year.