April 18, 2013

 

Following a turnaround in its niche organics business, Fonterra is renewing contracts for some of its organic dairy farmers in the middle and lower North Island.

 

Managing Director Fonterra Nutrition, Sarah Kennedy, said the Co-operative has worked hard over the past 18 months to return its organics business to profitability.

 

"18 months ago we were losing money so we restructured the business to focus on markets in Asia, while also reducing our costs to ensure on-going profitability. We reduced transport costs by concentrating organic milk supply in the central and lower North Island. Our focus on Asia has also paid off with higher premiums for organic ingredients and increasing demand, mostly out of China."

 

Kennedy added that based on this turnaround, the company is now able to renew contracts for farmers in the middle and lower North Island who have contracts expiring this year. The remainder of their organic suppliers in these regions have between 1-2 years left in their existing contracts with them.

 

Fonterra wants to ensure they build a business that is sustainable. With that in mind, they are conducting a thorough review to ensure they have the right business model to cope with volatile markets and will come back to their farmers early next year.

 

"We know our farmers are looking for certainty but it's critical we get this right for the long-term benefit of the whole Co-operative," said Ms Kennedy.

 

The organics plans outlined to farmers mean that farmers currently supplying organic milk in Manawatu, Taranaki and Wairarapa, who have contracts expiring in fiscal year 2013, will have them renewed for a further two year term. It also mean that farmers currently supplying organic milk in the Waikato and Bay of Plenty, who have contracts expiring in 2013, will have them renewed for a further three year term.

 

Fonterra will continue to concentrate organic milk supply in the middle and lower North Island, meaning Northland suppliers will not have their contracts renewed. It will update farmers who have contracts expiring in fiscal year 2014 and 2015 by early next year.

 

Fonterra is meeting with farmers in Northland, Waikato, Manawatu and Taranaki over the next two days to provide a full update on its organics operations.

 

Fonterra, a farmer-owned New Zealand co-operative is the largest processor of milk in the world, producing more than two million tonnes of dairy ingredients, value added dairy ingredients, specialty ingredients and consumer products every year. Drawing on generations of dairy expertise, Fonterra is one of the largest investors in dairy based research and innovation in the world. Our 16,000 staff work across the dairy spectrum from advising farmers on sustainable farming and milk production, to ensuring we live up to exacting quality standards and delivering every day on our customer promise in more than 100 markets around the world.