August 23, 2011

 

 

Fonterra announced Monday (Aug 22) it is scaling back its loss-making organic produce operations and focusing on emerging Asian and Pacific markets in a controversial move critics say could compromise New Zealand's organic dairy sector.

 

Fonterra's group director supplier and external relations Kelvin Wickham said the New Zealand-based, farmer-owned co-operative remained committed to the organics market, but growth in the market had significantly slowed since the global financial crisis.

 

The world's biggest dairy manufacturer, best known for its Anchor brand of products, would meet with its organic farmers this week to discuss a plan bring the business into a break-even situation, he said.

 

The plan included halving the number of organic suppliers in the North Island and concentrating them in the Waikato and Bay of Plenty regions, and reducing the amount of organic product processed at two of Fonterra's three certified organic sites.

 

Wickham said the organic product range would focus on cheese, which provided the best returns, and on emerging Asian and Australian organics markets, where the returns and growth potential were stronger.

 

He said the reforms would bring "efficiencies of scale in processing the milk."

 

"We understand the big commitment many of our farmers have made to the organics programme and that this transition will not be an easy one to make. The decision to reduce our organics operation was not taken lightly but we need to get the business back into a break-even situation," he said.

 

The organics market had been hit hard by the global financial crisis and market indications showed it would not recover to previous levels.

 

"All categories felt the effects, but particularly the category in which we sell packaged dairy foods where prices and volumes are still below 2008 levels," he said.

 

"Research shows people are now less willing to pay the premium for organic products. In addition, consumers are gaining more confidence that everyday products are being produced more sustainably and are more acceptable so they no longer see the need to pay the premium for most organic products."

 

Wickham said Fonterra's organics business would continue to make losses with it current structure.

 

"In order to stay in organics, we have to recognise that the global market for organics has changed."

 

However, the opposition Green Party feared Fonterra's move would cripple New Zealand's organic dairy industry and undermine the country's clean and green reputation.

 

"Organic dairy is the future of dairy in New Zealand and Fonterra are actively putting off this transition," said Green Party agriculture spokesperson Kevin Hague.

 

"It will also raise the price and limit availability for consumers who want organic dairy products.

 

"Organics give New Zealand dairy a competitive advantage for value-added products. Fonterra should be supporting farmers who have, and who wish to, convert to organic farming."

 

Hague said that given the poor state of New Zealand's waterways, conversion to organic farming was an easy way to cut nitrate pollution.