Fonterra will pay an “additional” monthly payment of 40c/kg milk solids on top of a forecast 2017/18 milk price of $5.30-$5.70kg/MS in a bid to retain milk supply.
A fundamental imbalance in global supply and demand, falling commodity prices, and a domestic milk price that was out of step with these conditions ultimately led to the step down taken by Fonterra in early May.
The lifting of quotas in Europe awakened the sleeping giant, and we are seeing phenomenal growth in European milk production, at a time when Russia has shut its doors and the Middle East isn’t buying due to low oil prices.
Europe has produced over 10 billion litres of additional milk since 2014.
It’s been a perfect storm for dairy, with economic and geopolitical factors thousands of miles away reverberating right down to the farmgate.
These recent challenges in dairy demonstrate the need to adapt and innovate right along the supply chain.
Consumers want value for money without compromising on quality – it’s why $1-a-litre milk is still going strong after five years.
The challenge for us as a dairy company is to give our customers what they want in a way that delivers returns throughout the value chain.
This is as true of consumers buying dairy at their local supermarket as it is of major ingredients customers around the world.
Our task as food producers is to deliver our customers what they want in an innovative and efficient way.
We’ve heard so much about the China boom and the opportunities it holds for Australian dairy.
We believe that because of our geographical position on Asia’s doorstep we are in the box seat to capitalise on those opportunities.
However, it costs up to 40%less to send a container from Rotterdam to Hong Kong or Shanghai than it does to send a container from Melbourne to Shanghai or Hong Kong.
We cannot rely on our geography alone to capitalise on opportunities in China.
We need to be innovative in the way we approach China, and offer value-added product delivered to our customers efficiently to set ourselves apart from our competitors.
Fonterra recently finalised an agreement to consolidate its warehouse and distribution network to a single facility in Melbourne’s west.
The 12-storey facility is capable of holding up to 110,000 pallets, and uses ‘dark’ cold storage, significantly reducing electricity use.
It’s a safer and more efficient way of packing and storing our products, and it’s fully automated, using robots to pick and pack orders.
With this technology we can be more agile and responsive to our customers’ needs, and deliver smaller and more frequent orders, increasing our efficiency and importantly, improving our service delivery.
By introducing greater efficiency to our supply chain, we can ultimately deliver greater returns to the farmgate because of reduced stocks and lower pressure on our working capital.
We also need to be innovative in our partnerships.
Our joint venture partnership between our Darnum site and Chinese baby food producer Beingmate connects us to 80,000 points of sale in China.
Beingmate is a leading player in China’s infant formula market, and we’ve purchased an 18% stake in the company, setting up a distribution channel that will reach millions of Chinese families.
It allows us to reach Chinese consumers directly and efficiently, delivering a high-value, high-quality product.
By building a relationship with a strategic partner in Beingmate, we’re able to leverage that relationship to gain access to a vital and growing market.
In return, Beingmate gets the confidence of a secure source of high quality product, with traceability from grass to glass.
We need to be more agile, more efficient, and more innovative to drive profitability throughout the supply chain, right back to the farmgate.
Innovation is about finding new ways to give our customers what they want, in the most efficient way for our business.
This is an edited extract of a speech delivered by Fabrizio Jorge, Director Ingredients Fonterra Australia, at the Gippsland Agribusiness Conference 2016