May 9, 2005

New Zealand's Fonterra widens sourcing of milk

Under a new capital structure approved on Thursday, global dairy giant Fonterra Cooperative Group will be able to source as much as 15 percent of its milk from farmers that are not shareholders.

This move to broaden its sourcing will encourage increases in New Zealand milk production, and help lower costs. It will also simplify its share structure to make it cheaper for farmers to join the cooperative, or to expand their farms.

Henry van der Heyden, Fonterra chairman said the new measures would provide alternatives to ensure the growth of milk is captured, while at the same time reducing the risk of redemptions by farmers leaving the co-op. Contract supplies will provide another entry point for farmers starting out in the industry, he said.

Fonterra, the world's fifth largest dairy company by sales needs to maintain its 95 percent share of New Zealand's milk output in order to achieve its aim of becoming the world's largest low-cost dairy producer. Milk production by the company has increased an average of 3 percent annually for the past three years despite a decrease of 8 percent in supply from farmers.

Fonterra collected about 14 billion litres of milk from its 12,000 farmers in 2004.