New Zealand-based dairy cooperative Fonterra is seeking NZ$1bn ($596m) in cost savings, likely leading to the potential loss of jobs.
“While this focus on efficiencies will have implications for staff numbers, we don’t want this to be at the expense of driving value growth,” CEO Miles Hurrell said in a letter to its farmer owners.
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“This is about enhancing our culture of continuous improvement and maintaining progress towards our long-term targets by being very deliberate about where we focus our people and your cash.”
The cost-cutting plan will be implemented over the next seven years, Hurrell said. In 2021, Fonterra set out a 2030 strategy course, which included plans to divest country-specific assets.
Fonterra, in the letter filed with the New Zealand stock exchange today (1 September) said of the cost-savings drive: “This goal will help offset higher inflation expectations and we intend to achieve it through a range of projects that will streamline how we operate.
“These projects include operational efficiencies, reducing cash costs across the business, and digitisation of business processes.”
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By GlobalDataHurrell noted the two recent revisions to its forecast farmgate milk price – what it pays farmers – have made the outlook for the year “even more challenging”.
He added: “I acknowledge the pace and magnitude of these recent price changes has been unsettling,” as he said one of the key drivers of falling prices is the reduction in demand from China for imported whole milk powder.
“Strong domestic milk supply growth in China has been propelled by high raw milk prices over the past few years. More recently, China’s extended Covid-19 lockdown has reduced consumer demand for fresh milk products and this demand has not yet recovered to the previously forecast levels.
“Overall, demand for dairy in China has continued to grow – just at a slower pace more recently. Looking beyond whole milk powder, our Greater China business is performing well, with demand for our broader product categories continuing to be strong.”
Announcing the 2030 strategy plan in 2021, Fonterra said it planned to focus on value-added opportunities in New Zealand milk and potentially divest assets in Australia and Chile.
Hurrell said at the time the 2030 plan would see the world’s largest dairy co-op “continue to focus on New Zealand milk, be a leader in sustainability and be a leader in dairy innovation and science”.
The group then sold its Chile dairy assets to Peru’s Gloria Foods last year. However, the same year, Fonterra backtracked on its plans to sell its Australian arm, saying business in the country is “going well”.
