Fonterra scraps 523 jobs, hopes to save up to $60m a year

The job cuts were "about continually improving the way we deliver performance", said Fonterra CEO Theo Spierings.
CHRIS SKELTON/FAIRFAX NZ

The job cuts were "about continually improving the way we deliver performance", said Fonterra CEO Theo Spierings.

As it struggles with falling dairy prices, Fonterra is axing 523 jobs as part of a major overhaul of its business and more cuts are possible.

Chief executive Theo Spierings said the news had been unsettling for the people affected, but the company had to change if it was to remain strongly competitive.

"Reducing the number of roles in our business isn't about individual competency; it is about continually improving the way we deliver performance."

Federated Farmers Dairy chairman Andrew Hoggard has stated that many farmers were concerned if the axing was a knee-jerk reaction to low milk prices, but would support any cuts made to strengthen the co-operative's strategy.

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Affected staff will begin to leave the co-operative in September. Fonterra employs 16,000 people in New Zealand and other countries.

The dairy co-op said the one-off $12-$15 million cost of laying off the staff would bring ongoing savings of $55-$60m per year.

The jobs are understood to be from central procurement, finance, information services, human resources, strategy and legal teams.

Staff have also been told that on August 5 the company will begin consultation on new structures in numerous other divisions including sales, marketing, research and development, communications, health and safety, and food quality.

A Fonterra spokeswoman would not comment on whether further job losses were likely, but confirmed that the review was not yet over.

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The main goals of the overhaul include focusing on cash flow and implementing sustainable measures for efficiency.

Spierings said one simple example was a tweak to export container identified by supply chain staff which would save up to $5m a year.

He has previously said the review was aimed at helping generate cash to help farmers struggling with the low payout environment.

Fonterra will not say if job cuts will affect regional workers.

A spokesman said people leaving the company will not be known for months, as there might be six people employed and four positions remaining, which they all may apply for.

He said it was likely to be November or December before the full picture of numbers of people leaving were known.

Fonterra will undertake a review of the Palmerston North Research and Development Centre next month, which employs 400 people.

Engineering Printing and Manufacturing Union (EPMU) national secretary Bill Newson said it had no information from Fonterra about which departments would be affected by the job cuts or whether any of its members would be affected.

Waikato Federated Farmers president Chris Lewis said the announcement, on the back of a a disastrous ninth consecutive fall in dairy prices at the latest GlobalDairyTrade auction overnight, left farmers in "survival mode".

"Everyone is just looking out for themselves now….it's been two seasons of hell."

He said the Government had been placing a lot of emphasis on Auckland's housing problems, but the region's were starting to suffer in a big way now. 

"They [the Government] need to get a new compass and might point to the regions ... we saw what happened with Winston Peters in Northland when it got abandoned."

Lewis said he would be meeting with Reserve Bank governor Graeme Wheeler in a few weeks and Federated Farmers' message would be clear; "We'll be saying very firmly that the dollar needs to drop more and over draft [rates] need to drop."

Farmers below the break-even point are struggling with cashflow and debt servicing, which has major implications for rural lenders and the broader economy.

Fonterra shares were unchanged at $4.75 following the announcement, while Shareholders' Fund units fell 1c to $4.76.

The dairy giant is collectively owned by 10,500 New Zealand farmers, and is the world's largest exporter of dairy products.

Labour's primary industries spokesman Damien O'Connor said the size of the cuts was a surprise.

"It's a massive blow to a company that should have been operating efficiently for some time and will no doubt create further cultural challenges at a time when they face huge hurdles in the marketplace," O'Connor said.

In the three years since Spierings had been chief executive, Fonterra had been under "constant review and restructure", O'Connor said, and farmers would have expected that would leave the company lean.

However, the depth of the cuts suggested otherwise, he said.

"What this does is confirms that perhaps they [Fonterra] haven't been running as they should have been and as someone who has been there for three years he [Spierings] has to take some of the responsibility."

Primary Industries Minister Nathan Guy refused to comment.

 - Stuff

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