Fonterra suppliers have received an insight into the company’s future direction from Oceania managing director René Dedoncker.
Mr Dedoncker spoke at Fonterra’s Industry Breakfast in Moama on June 12, which also heard from Farm Source director Matt Watt.
Mr Dedoncker said the decision to sell the Australian asset as part of the Oceania deal was a strategic board decision based on the long-term future of the company.
Demographics, protein and future capital were some of the major drivers behind the decision.
“The business we have today is going to be different to where we want to be in the future where we see Fonterra as a special, ingredients-based business.”
Mr Dedoncker reiterated Fonterra the business is in a strong position and the consumer business is expecting to have a record year.
He is expecting the divestment process to take a couple of years and he assured suppliers Fonterra will continue to support suppliers and pick up their milk in the meantime.
“Farmers will be kept up to speed on what is happening and it really is a fantastic opportunity for another processor to enter the country, which is great news for the industry,” Mr Dedoncker said.
Mr Watt said the drop in this season’s milk price had not come as a surprise to the vast majority of suppliers.
“We had a wish list, but the reality is the market kicked in and there has been a down tick in pricing,” Mr Watt said.
He said one of the major contributors to the downturn was a growing Chinese domestic market.
“Production in China grew by eight billion litres, and even though their cost of production is around $10.50kg/ms and the market has come back to $9.30, the industry will continue to grow because of government investment.
“This reduces their need to import,” Mr Watt said.
He did say the global factors which have driven the adjustment are starting to rebalance, and if the Australian dollar remains where it is, there could be step ups.
“If Fonterra did not have this adjustment, we would be put under more financial pressure,” he said.
“Australian exports have dropped by 17 per cent, while imports have increased by 19 per cent.”
Mr Watt blamed some of the increase on the cost of living as consumers were seeking cheaper, imported alternatives.
“Fonterra can’t shrink their way to prosperity, we will just have to work our way through this.”
Supplier council chair Paul Weller said while suppliers did not like the $8 price, he understood the decision behind it.
“Cheap imports are coming in and undermining market returns,” Mr Weller said.
“The council plays an important role for farmers, and we will be watching the market closely, and if there are indicators, we will be telling the company its time to step up.”
Mr Weller said he heard about the divestment after Mr Dedoncker rang him at 6.34am.
“Straight away I said there will be some nervousness among suppliers, but the reality is whoever buys the business is going to want milk supply and that is a positive.”