Fonterra’s Judith Swales explains Theo’s thoughts on Aussie dairy farmers

Theo Spierings Fonterra chief executive Theo Spierings. Photo: Pat Scala, Sydney Morning Herald

Fonterra is one of the world’s biggest dairy companies with a glittering history. A cooperative in New Zealand, Fonterra is also Australia’s second-largest processor.

Just last year, Fonterra delivered a stellar Kiwi farmgate price far better than anything ever enjoyed by Aussie dairy farmers. Analysts enjoyed debating why Australia could not emulate its success. Today, the co-op is under intense scrutiny from its shareholders.

As I mentioned in the previous post, farmers in New Zealand are doing it very tough this year and Fonterra Australia chalked up losses last year.

Then, last week, Fonterra’s chief executive Theo Spierings​, was quoted in the Sydney Morning Herald  in a story headlined Aussie farmers being overpaid amid global dairy rout, says Fonterra boss.

After quoting Mr Spierings as saying the current price of $5.60kg MS could not be supported, the Sydney Morning Herald reported:

Mr Spierings said the method on how Australian farmers were paid needed to change so it wasn’t based just on the farm-gate price and matched other processors.

“It’s loyalty and skin in the game that can lead to an upside. You can call it a dividend, or whatever, a bonus per kilogram milk solids,” he said.

“But we need to have the conversation now about what the endgame looks like. What is the value being created – what’s the size of the cake? Then we need to have a good debate with farmers … about how are we going to share – how are we going to cut the cake?

The comments raised a lot of questions for a Fonterra Australia supplier like me, especially in respect to the “Bonlac Agreement”, which extends until 2019 and commits Fonterra to paying its Australian suppliers a price that equals or betters the dominant processor.

I put some of those questions to Fonterra Australia and am grateful to managing director, Judith Swales, for answering them.

Judith Swales, Fonterra Australia managing director. Pic source: Australian Dairy Farmer

MMM: Why has Theo chosen to telegraph a change in Fonterra’s dealings with Australian farmers via the media rather than by opening a conversation with farmers?
JS: Theo was commenting on the global dairy situation and its impacts for Australia. He was putting a voice to issues that many in the industry are well aware of. These are difficult issues and shouldn’t be shied away from, and as an industry we need to address them.

MMM: Are there any inaccuracies in the article you would like to correct?
JS: The headline was unfortunate. The main issue to point out is that the problem is not around Australians dairy farmers being overpaid – as stated in the headline – but rather the impact global volatility is having on the sustainability of current dairy pricing in Australia. What’s important, is that we’re sending the right price signals to our farmers to avoid any surprises and so that they can budget for various scenarios.

MMM: Theo appears to cast doubt on the Bonlac agreement that ensures farmgate prices match or better the dominant competitor. Will Fonterra honour that agreement this year?
JS: We remain fully committed to honouring the Bonlac agreement. We are focussed on giving our farmers line of sight to the price we can pay this year as quickly and accurately as we can. The price we pay this year must be sustainable. We do not want to sacrifice investment in our long term strategy, which aims to deliver returns above the Benchmark price, in response to short term, tactical pricing pressures.

MMM: Does Fonterra remain committed to the Bonlac agreement in the medium to long term?
JS: We view the BSC Milk Supply Agreement as a baseline. We always strive to aspire to more – whether it be with our SupportCrew services, price risk management tools or our suppliers receiving the highest milk price (as found in an independent report by Ian Gibb for the 2013/14 season). We expect our relationship with our suppliers to continue to evolve over time.

MMM: “It’s loyalty and skin in the game that can lead to an upside. You can call it a dividend, or whatever, a bonus per kilogram milk solids,” says Theo. Does this mean special pricing that favours long-term contracts and large farms?
JS: Achieving a mechanism for determining milk price that drives behaviours that support the success of Fonterra’s strategy for all suppliers is our aim. This work is always evolving and we will continue work with BSC on this.

MMM: Farmers who supply milk to Fonterra Australia are suppliers rather than shareholders. What does Theo mean by “sharing the cake”?
JS: We have always said that the best dairy industry model is the one where everyone can get a sustainable return. Farmers need to be able to make money, processors need to make money and so do customers, like retailers. And that’s what he means by sharing the cake.

MMM: Does Fonterra continue to have a long term commitment to Australia?

JS: Absolutely we are committed long term to Australia; and our Board continues to voice this commitment. Australia is one of our four key strategic markets for Fonterra. It is a key plank to our global multi-hub strategy, which complements our Retail and Foodservice business. We continue to invest: we are progressing our Beingmate partnership; we have plans to rebuild our cheese plant in Stanhope; and only this week we commissioned a multi-million dollar Beverages plant in Cobden.

Thank you very much, Judith Swales!

8 Comments

Filed under Dairy Products, Farm, Fonterra

8 responses to “Fonterra’s Judith Swales explains Theo’s thoughts on Aussie dairy farmers

  1. IanA

    It’s great that the local MD responds so fully but it does read a bit like she is having to back away from the Fonterra guy’s original comments. The original comments in the SMH read (to me at least) like a dog whistle to Fonterra’s competitors, bordering on collusion. How about we let each company do their own business, at their own price as see how things develop? This is obviously different to NZ given there basically is no competition to Fonterra over there.

    Liked by 1 person

  2. Brett Allan

    I am sure when Theo said we r paid to much it was like a red rag to Gary and sure knowing they have to pay More than MG he wil bust his arse to pay out the $6.05 to really heap on the pressure to Theo from his NZ farmers having to subsidise there price to pay more here so frontera suppliers here can send Gary a Xmas card for there good price. it’s great to see the sleeping giant finally waking up and getting it together to heap the pressure on the other milk factory’s

    Like

  3. bernhard

    Mr Spierings said the method on how Australian farmers were paid needed to change so it wasn’t based just on the farm-gate price and matched other processors.
    “It’s loyalty and skin in the game that can lead to an upside. You can call it a dividend, or whatever, a bonus per kilogram milk solids,” he said.
    “But we need to have the conversation now about what the endgame looks like. What is the value being created – what’s the size of the cake? Then we need to have a good debate with farmers … about how are we going to share – how are we going to cut the cake?

    Mr Spierings needs to explain what he really means by the above statements, Judith Swales comments shed very little new light on how it should be decoded and what are it’s impacts for the Aust ind. The Udv should be asking a lot more questions, he said this for a reason they cannot let this lay unresolved. This to me sounds like a cry for help from a desperate man because I think Fontera is in a lot more trouble than people realize, the Aust business from all accounts hasn’t been all that profitable and a drag on the business. Fonterra seems to have lost sight of being a lean and efficient farmer owned milk processor and morphed back into a new version of the old NZ Dairy Board that was cumbersome and inefficient with to many fingers in to many pies and I agree it seems like price signalling also farmers have a lot more skin in the game than the possessors!

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  4. brett Allan

    no wonder Theo said we r paid to much as he had to pay lees in NZ to give himself an 18% pay rise in a year with were the NZ price is what a clown

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  5. Lesson, listen rather than throw stones.

    Like

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