Fonterra announces annual results – Australia ‘performed strongly’

Fonterra Co-operative Group Limited today announced its annual results, final Farmgate Milk Price of $7.14 per kgMS and a dividend of 5 cents per share for the 2019/20 season, bringing the final cash payout for farmers to $7.19 per kgMS.

Fonterra CEO Miles Hurrell said 2019/20 was a good year for the Co-op, with profit up, debt down and a strong milk price.

“We increased our profit after tax by more than $1 billion, reduced our debt by more than $1 billion and this has put us in a position to start paying dividends again,” he said.

“I’m proud of how farmers and employees have come together to deliver these strong results in a challenging environment. They have had to juggle the extra demands and stress of COVID-19 and have gone above and beyond. I would like to thank them for their hard work and support.

“This time last year we were announcing our new strategy and customer-led operating model. We were clear that to build a sustainable future we needed to focus on three interconnected goals – Healthy People, a Healthy Environment and a Healthy Business.

“We went on to deliver a strong performance for the first half. However, what none of us could have ever predicted was what then played out – a world facing COVID-19. The flow-on effects of the pandemic did impact our performance in the second half, particularly in our Consumer and Foodservice businesses.

“2019/20 proved to be a year of two halves, but we delivered on all four of our priorities:

  • We’ve supported regional New Zealand, contributing around $11 billion into New Zealand’s rural economies through the milk price, and we’ve rethought our approach to community support, with the aim of helping out more where it’s needed the most – such as, growing the KickStart Breakfast programme alongside Sanitarium and the New Zealand Ministry of Social Development and partnering with the New Zealand Food Network to help get dairy nutrition to those that need it the most.
  • We’ve built a great team through a focus on our culture, and we’ve seen that in action in how we’ve responded to COVID-19.
  • We’ve continued to reduce our environmental footprint, including hitting our 2020 target to reduce energy intensity across our New Zealand manufacturing sites by 20%, from a 2003 baseline – cumulatively, that’s enough energy saved to power all the households in New Zealand for 1.5 years.
  • We’ve achieved our key financial targets with normalised earnings of 24 cents per share, a Total Group normalised gross profit of $3.2 billion, a $181 million reduction in capital expenditure and a $1.1 billion reduction in debt so the ratio of Debt to EBITDA has now improved to be 3.4 times our earnings, down from 4.4 times.

“The work we’ve done to strengthen our balance sheet has allowed us to focus on managing COVID-19. So far, demand for dairy has proved resilient and our diverse customer base and ability to change our product mix and move products between markets has meant we can continue to drive value.

“We’re at our best when we’re clear on what we need to do, why and how, and the whole Co-op is focused on it. When I look back on last year, it’s great to see how this clarity has helped us respond to challenges, adapt and deliver results.”

Business Performance
Total Group normalised EBIT was significantly up on last year from a loss of $17 million to earnings of $1.1 billion. This includes gains from asset sales, and impairments and costs relating to the strategic review.

Once these are taken out, the Total Group normalised EBIT, which the Co-operative uses to show its underlying business performance, was also up from $812 million to $879 million, despite the financial impact of COVID-19 in many of its markets.

Hurrell said the main drivers of the underlying business performance was a strong normalised gross profit in the Ingredients business and, although there was the disruption from COVID-19, the strong sales and gross margins from the Greater China Foodservice business in the first half of the year.

Ingredients’ normalised EBIT improved from $790 million last year to $827 million this year, with normalised gross profit up $165 million to $1.6 billion.

Hurrell said that at the Co-op’s interim results, the normalised gross profit in Ingredients was relatively steady.

“As we moved through the second half, we saw restaurants, cafes and bakeries close and intermittent spikes in supermarket sales, creating uncertainty across the global dairy market. This uncertainty resulted in softening milk prices, which helped improve the gross margin and gross profit in Ingredients.”

Greater China Foodservice’s normalised EBIT increased from $114 million last year to $169 million this year.

Hurrell said the business achieved strong year-on-year sales growth in the first half of the year but was then hit hard by COVID-19 when many food outlets were closed. Normalised gross profit started to quickly rebound in the third quarter – although he also points out it is still not at 100%.

“We have seen significant growth across the Anchor Food Professional product range in China. We have entered 50 new cities across China, taking our total to 350, and our products are now not only being used in Western style restaurants and bakeries but also those serving local cuisine.

“However, as per our guidance in our third quarter business update, our Foodservice businesses across Asia, Oceania and Latin America were impacted by COVID-19 in the fourth quarter. All three markets reported losses in the second half.

“Despite this, normalised EBIT for Foodservice overall was up 14% on last year to $209 million, which is a result of the strong performance by the Greater China business in the first half.

The Consumer business’ normalised EBIT reduced to $149 million from $227 million, mainly as a result of impairments of $57 million relating to the Chesdale brand and New Zealand Consumer business’ goodwill.

Normalised EBIT, excluding these impairments, of the Consumer businesses in Oceania and Asia improved, despite COVID-19. However, due to civil unrest and market disruptions in Hong Kong and Chile, the normalised EBIT, after excluding these impairments, of the Consumer business declined 10%.

Hurrell said its Australian Consumer business performed strongly with sales continuing to increase thanks to its popular beverage, spreads and cheese products.

“Our New Zealand Consumer business focused on improving customer service and keeping supermarket shelves well stocked, particularly as New Zealanders were stockpiling through COVID-19.

“Despite the better performance this year, due to the economic outlook post-COVID-19, our New Zealand Consumer business’s future cashflow projections are lower than we estimated last year and, as a result, we have decided to write down its goodwill by $21 million. It now has a total value in our accounts of $699 million.”

Mr Hurrell says, in addition to the improved earnings performance, Fonterra has followed through on its commitment to financial discipline and this has increased the financial strength of the Co-op.

“Our cash flow has improved and our debt has reduced by 19% or $1.1 billion compared to last year. Increased earnings, reduced capex, as well as the sale of DFE Pharma and foodspring® for cash proceeds of $623 million in the first half of the year, have all contributed to this improvement.”

Dividend and Farmgate Milk Price for 2019/20 

Fonterra announced a dividend for the 2020 Financial Year of 5 cents per share and final Farmgate Milk Price for the 2019/20 season of $7.14 per kgMS.

Fonterra Chairman John Monaghan says for a 100% share backed farm, this gave them a final cash payout of $7.19 per kgMS.

“This year marks a return to paying dividends, a position we expect to maintain in the future, assuming normal operating conditions.

“At 5 cents per share, the dividend is at the lower end of the 5-7 cent range calculated under the Board’s dividend policy guidelines.

“In the context of so much uncertainty, as COVID-19 continues to impact our key markets and customer confidence, distributing a 5-cent dividend is a prudent decision and one that balances our aims of further reducing debt and distributing earnings.”

Outlook
Fonterra has announced a 2020/21 earnings guidance range of 20-35 cents per share and has also reaffirmed its 2020/21 forecast Farmgate Milk Price range of $5.90-$6.90 per kgMS.

Monaghan said  the impact of COVID-19 is still playing out globally.

“From a Milk Price perspective, the supply and demand picture remains finely balanced and for that reason, we are maintaining our previous forecast range for this season.

“In terms of our earnings, we are forecasting a full-year normalised earnings per share range of 20-35 cents per share.

“There continues to be significant uncertainties – including how the global recession and new waves of COVID-19 will impact demand globally, and what will happen to the price relativities between the products that determine our Milk Price and the rest of our product range.

“As a result of these uncertainties and given that financial year has just begun, we are giving a forecast earnings range wider than we usually would.

“We will be monitoring the situation throughout the season and as the year progresses, we would expect the earnings range to narrow.

“The best way of coping with uncertainty is to stay on strategy and focus on what is within our control – delivering for our farmers, unitholders and customers, and maintaining our financial discipline.

“We need to stay agile and draw on our strengths across the supply chain to manage and adapt to the changing global situation.”

Why the biggest dairy exporter in the world had to embrace the IoT

Let’s look at the impressive stats – 10,000 farmers, 1600 tanker drivers, around 500 milk tankers, 22,000 global staff, , 22 billion litres of milk processed every year, $17 billion in revenue. This is what it means to be the biggest dairy exporter in the world, according to Fonterra’s Infrastructure and Global IS engagement manager, Dave McPherson.

New Zealand-based Fonterra is a dairy co-operative born in 2001 when the country’s two biggest co-ops – Kiwi Co-operative Dairies and New Zealand Dairy Group – merged with the statutory body, the New Zealand Dairy Board.

It is the largest company in New Zealand in terms of economic impact, and produces about 20 per cent or the world’s dairy exports. It’s size gives it many benefits – economies of scale, employment, high turnover, and an avenue to solidify New Zealand’s place as a country that produces high-quality products for local and overseas consumption.

But being as big as it is also introduces a few issues. Not least of which are trying to find better ways to streamline production processes, save on power, and one of the biggest costs – maintenance of the company’s plant, infrastructure and tanker fleet. A mere three years ago, McPherson attended the first Industrial Internet 4.0 Summit in Sydney knowing very little about the Internet of Things (IoT) or Industry 4.0. Now, 36 months later, not only did he give a 40-minute speech on the subject at the latest summit, but the company has embraced the concept at so many different levels – it is a walking advertisement for digitising a business.

“When I attended the first conference back in 2017, I was trying to get a handle on all the hype around IIoT and Industry 4.0, smart manufacturing – all these buzz words that were relatively new to us and we were trying to get a handle on where we could drive some value from the stuff,” he said. “In particular, what we were really trying to find were people that were doing stuff in this space currently and how we can leverage their learnings to speed up our journey.”

When he came to the first summit, he knew almost straight away that Fonterra could embrace the concepts and save itself a lot of money. It was a matter of trying to find out what they could do and how they could implement processes into what they were doing. It didn’t take long.

“I have plenty of examples across our supply chain where we are using new IoT.,” he said. “What I call new IoT is gear supplied by third-party vendors, who are providing us low-cost, battery-powered solutions, which are connected by proprietary networks like SigFox or LoRa, rather than traditional wireless networks. Alternatively, we are dealing with new vendors who are traditionally not in our supply chain.”

Being a co-operative, the company’s shareholders are the dairy farmers themselves. And it hasn’t taken long for those earning their living off the land to take on board some of the technologies brought about by the IoT. It does not cost farmers an arm and leg to do so, according to McPherson.

“There is a huge increase in availability of these low-cost devices, with new vendors coming to market all the time. It has given us a lot of opportunities to grow in this area,” he said. “On the farm we are seeing a rapid growth in the adoption of IoT sensors. Most of this is to do with compliance and sustainability as well as productivity and animal health and welfare. It all starts at the farms. Farmers, like a lot of industries today, are having to be a lot more compliant from a sustainability perspective – wastewater, effluent – everything we manage or farm needs to be measured or monitored. All water usage on farms has to be measured, which is increasingly being measured by IoT sensors and sent directly to councils.”

A big issue on all farms is the treatment of the aforementioned wastewater and effluent. Cow herds produce a lot of both and New Zealand has a lot of regulations when it comes to how these by-products are monitored and treated. IoT-enabled devices offer the perfect solution on the ground.

“One of the more interesting projects we have done recently is wastewater management,” said McPherson. “We own the farms around most of our factories and that is for the purpose of getting rid of our wastewater. We’re monitored by councils about how we manage wastewater and keep it out of the waterways. We set up a project whereby we used irrigators that were pulled out manually across the field. When [the irrigators] are pulled out we have to be sure that they are not getting too close to waterways to make sure the wastewater doesn’t go where it is not supposed to go. It got to a point where one of our plants nearly got shut down because we weren’t doing a good enough job of it.

“We deployed GPS tracking on the irrigators, and, coupled with weather information, wind speed and wind direction, the pumps that control the irrigators would be automatically shut down quickly if there was a possibility the wastewater could spray into the waterways.

“We came up with a very cost-effective solution by using new IoT sensors from a company we had never dealt with before. They came up with a real robust solution, which we implemented very quickly”

Then there is the milk itself. The temperature of milk is regulated by the New Zealand Ministry of Primary Industries for the dairy industry. Farmers need to get the milk down to Ten degrees Celsius within four hours of starting to milk the cows and Six degrees within two hours of completion of milking. The longer the milking takes, the longer it takes to cool, which then shortens the window Fonterra has to pick it up from the farm gate. With some new sensors, it is possible to measure the temperature in real time in the farm-based vats where the milk is initially stored.

“That information along with the volume and the fact that the agitators are stirring that milk will come back to us in real time,” said McPherson. “[This is] a lot of data pinging off 10,500 vats every five minutes, but it gives us a real-time picture that may even potentially stop us picking up milk that we otherwise wouldn’t want, and provides huge efficiency gains in optimising the loading of our tankers knowing exactly how much milk is at each farm – prior to collection”

But it still needs to be kept cool when it is being transported. Fonterra put some sensors on the tankers that came back with results that they didn’t expect.

“Our tankers are not refrigerated and our storage silos at factories are not refrigerated. It is critical that we try and get that milk temperature down on the farm as soon as possible and keep it there before it gets processed. Where we measured the temperature in transit we used these little sensors which were very cheap,” he said. “We measured all different points of the tankers. The top, where we thought there would be the most impact from a heating perspective with regards to the sun. It turned out it was the heat coming up from the road – it was the bottom of the barrels that were getting the most heat between the pipework and the cab and the barrel and the truck.

“Once we found these hots spots, we worked with a couple of companies on coatings we could put on the tankers to eliminate the heat. We’ve had about six different coats sprayed onto a number of tankers and using sensors we are starting to see some great benefits, which has led to zero increases in temperatures,” said McPherson.

Some farmers are even going one step further by monitoring the cows with wearable sensors. “[Farmers] can tell when [the cows] are drinking or eating, how long they are spending standing up eating,” he said. “It also tracks their temperature, which will give warning signs of when the cows are getting sick – all of these things affect productivity for the farmers.”

One of the biggest expenses of Fonterra is running its tanker fleet. Maintenance of the fleet is a cost that affects the bottom line, but is something that can be addressed thanks to IoT devices.

“Simple telematics will tell you how to reduce your maintenance costs of your fleet – monitoring things like engine temperature, revs and brake wear,” said McPherson. “But we can also monitor the drivers and the wear and tear caused by their driving. When the system was first installed, we had 1500 drivers in the fleet and they start out with 100 per cent score at the beginning of the day. Depending on how they drive the trucks, they would lose points. Initially they were getting scores around the 92 per cent mark, but we are now at 99.7 percent. With a 500-odd fleet of tankers, you can understand there are some big savings in our fleet maintenance costs.”

And how did the drivers feel about being monitored. Doesn’t it have a tinge of Big Brother about it?

We had a few challenges in that area, but generally they got it. They got why we were doing it, and have got on board as they take a lot of pride in their job and are driving professionals.”

One thing the company has found – as is a common theme among those taking on board IoT devices – is the amount of data that is created. At the device layer in their NZ Manufacturing plants alone, the company pulls about 430,000 time series data tags into its PLCs in real time. Once that data is combined with set points and other values of the PLC, that accounts for about 40-million-time series data tags. It uses around 250,000 of them, but, going forward, it is expecting that will grow to four million data points that it will be tracking and storing.

A lot of companies are also looking at automated condition monitoring, otherwise known as predictive maintenance, as it relates to the IoT. Fonterra spends millions of dollars a year on maintenance of its manufacturing plants. Given the seasonal nature of its business it has a 100 per cent of the company’s assets running at 100 per cent of the time for a couple of months a year at peak. Then it becomes less intensive.

“Our maintenance programme is usually done in winter and we pull every pump, motor and valve and replace bearings just because we’ve done it for years,” said McPherson. “With the IoT sensors, we should be able to save a lot of money by finding out if we actually need to do it in the first place. For us, to be able to predict the failure and then allow downtime in our plants to do the maintenance means we don’t have the overhead of a huge number of people working across our manufacturing facilities in the off-season.”

Other areas where the IoT is making an impact is in the supply chain and dry storage. Again, temperatures have to be measured in the storage areas, and with New Zealand summers becoming hotter, it is increasingly becoming an issue. The company also has small magnetic devices that are fitted in the hinge of containers. When it is closed and turned on it is sending out GPS coordinates of the location of the container, temperature inside the container, humidity and whether there is light getting into the containers.

“You get real-time alerts when these containers are being opened somewhere along the supply chain,” said McPherson. “Sometimes along the customs borders. Sometimes when we don’t really want them to be by someone who has stolen a container. Sometimes, we’ll get a customer complaint when it turns up damaged. These sorts of devices are allowing us to track issues in the supply chain where these things might happen.”

The company recently did 200 trials of a random number of containers going to various places around the world. The containers were pinging out data giving locations and other information that was captured at the same time. It’s helped Fonterra identify issues that were going on that it otherwise wouldn’t have known about.

“For example, we’ve had containers sitting in Chicago in the winter time in -9 degrees and customers have complained about what that has done to the product,” said McPherson. “Other scenarios where we’ve had damage to containers or pallets where they have opened it up and bags have burst or the pallets are damaged and customer complaints have come through quite regularly. That is a great little device that gave us a head’s up when there was a problem.”

Fonterra is an example of a company that less than three years ago, had hardly heard about the IoT, or what it would mean for its business. Now, the IoT has become part of its everyday life of doing business. And what of the future?

“Increasingly the challenge for us now, and a lot of companies, will be across the supply chain where you are pulling data through these IoT sensors to these third-party cloud solutions,” said McPherson. “The real challenge will be how we integrate it back into our systems.”

And what is McPherson’s final word on the IoT and what it means for doing business?

“A lot of this is around changing business processes, taking people on the journey, getting them to understand the reason why traceability is important,” he said. “A lot of people think it is a Big Brother thing. In reality, it is just the future of what we have to do with this traceability across our food chain and that, in the long run, is a good thing.”

 

Fonterra to expand dairy operations in Victoria, Tasmania

Fonterra Australia is matching its push to secure additional milk volumes with more than $165 million in capital expenditure in this financial year at key sites in Victoria and Tasmania in a move to increase capacity and meet unique demand opportunities for dairy.

The investment was first signalled by the dairy co-operative’s CEO Theo Spierings in November last year. It is made up of new investment of around AU$130 million to put in 500 million litres of additional capacity, and a further AU$35 million for a range of annual site improvements as part of its regular capital investment plan in Australia.

The expansion includes a $125 million expansion at Fonterra Australia’s flagship Stanhope cheese facility in northern Victoria which will double the size of the cheese plant; and a $12 million investment in Tasmania, which includes expansion to its Wynyard cheese plant and an increase in lactose processing capacity at Spreyton.

In addition, the company has announced a further AU$7 million expansion at the Darnum nutritionals plant in Gippsland as well as the installation of two robotic palletisers in Bayswater in eastern Victoria to improve efficiency; as well as $13.5 million for projects at Cobden and another AU$8.6 million at Dennington in western Victoria.

René Dedoncker, Managing Director of Fonterra Australia, says customers want trusted supply options out of Australia, especially for products like cheese, whey and nutritional powders which are in high demand.

“We have a clear strategy that is delivering sustainable returns. To create value, we need to invest to stay ahead of the demand curve. These investments support our aim to secure positive returns back to our farmers on both sides of the Tasman.”

He said Fonterra Australia will play to its strengths in cheese, whey, nutritionals, and butter, increasing production capacity to meet rising domestic and global demand, but filling its expanded capacity would mean securing more supply.

Fonterra full year profit down 11pc

Dairy Co-Operative Fonterra has announced net profit after tax for 2016/17 was NZ$745m ($687m), a drop of 11 per cent.

Despite the drop, the company also announced an increase in the amount it pays farmers. It confirmed a final Cash Payout of NZ$6.52 for the 2016/2017 season for a 100 pet cent share-backed farmer. This is made up of a Farmgate Milk Price of NZ$6.12 per kgMS and a dividend of 40 cents per share.

Revenue increased by 12 per cent to NZ$19.2 billion, with rising prices offsetting a 3 per cent decline in volumes at 22.9 billion LME. Normalised EBIT of NZ$1.2 billion was down 15 per cent as a result of reduced margins across the business which also influenced net profit after tax, down 11 Per cent at NZ$745 million.

Chairman John Wilson said the Co-operative’s ability to maintain its forecast dividend despite the Milk Price increasing by 57 per cent over the year and the impact of negative stream returns was an excellent result.

“We will always need to manage variability across our Co-operative – both in global markets and in our local farming conditions. We’ve demonstrated our ability to deal with those conditions and deliver on our strategy again this year,” said Wilson.

Consumer trends driving demand for protein in Asia

According to global market intelligence agency Mintel, the share of new food launches with high protein claims across Southeast Asia grew by 8 per cent on average every year from 2012 to 2016, with Thailand leading the way as one of the standout markets for high protein food launches.

NZMP – Fonterra’s dairy ingredients business – is set to showcase its innovative SureProtein range of high-protein, clean-label dairy beverage concepts at Food Ingredients Asia (FIA) from 13 to 15 September 2017 in Bangkok.

Fonterra NZMP Ingredients General Manager for South & East Asia, Hamish Gowans, says that Asian consumers are increasingly seeking specific nutritional benefits to support their growing interest in health and active living, while demanding greater convenience to fit urban, time-poor lifestyles.

“Protein is rapidly evolving from a ‘fitness’ to a ‘health and wellness’ ingredient, as incomes rise and people become more aware of its benefits. Although protein has long been associated with body builders and elite athletes, protein-fortified food has now expanded into the mainstream,” said Gowans.

“Protein boosts and maintains muscle, helps with weight management, improves growth and development, and helps to keep people active as they age.

“Dairy in particular is an excellent source of high quality protein, and is a tremendous nutritional bundle. Protein from dairy is amongst the highest quality protein available, providing more digestible essential amino acids per gram than other protein options, such as soy.”

On display to FIA delegates will be an array of beverage solutions made with NZMP SureProteinTM ingredients, including:

  • A refreshing high protein water to support hydration and nutrition
  • Fast Milk Protein chocolate milk, a delicious high protein recovery drink which significantly increases the rate of amino acid digestion and absorption to support muscle recovery after exercise.
  • Clean label high protein dairy beverages which are free from additives and a great source of calcium and protein.
  • Barista Milk produced with Milk Protein Concentrate 4424 to provide foaming performance and sensory characteristics equal to pasteurised full fat milk.

In addition, Fonterra Research and Development Centre Nutritionist, Mindy Wigzell, will speak about dairy as nature’s ultimate source of protein on 13 and 14 September 2017, from 12-12.30pm in Seminar Room 5.

To further highlight the ‘New Zealand advantage’, delegates visiting the NZMP stand can get up close to a New Zealand dairy farm via an interactive 360° NZMP virtual reality experience. They can also explore ingredients and solutions in the NZMP virtual store that can help to grow their business.

The NZMP exhibit will be at stand X9 and will also feature some of NZMP’s unmatched consumer powders and dairy fats ingredients such as Low Lactose Whole Milk Powder, Super Fortified Skim Milk Powder and Spreadable Butter that spreads straight from the fridge.

 

Fonterra lifts farmgate milk price

Dairy processor Fonterra has announced an increased forecast Farmgate Milk Price for the upcoming 2018 season, to $6.75 kgMS.

Chairman John Wilson says the revised forecast Farmgate Milk Price is a lift of 25 cents on the original forecast of $6.50 per kgMS in May 2017 and reflects the ongoing rebalancing of supply and demand in global dairy markets

“We are seeing growing confidence on-farm across the country and, with global demand for dairy strengthening, the signs are for a good start to the season for our farmers and their rural communities although following a challenging period of very wet conditions for some of our farmers,” said Wilson.

“The increased Farmgate Milk Price will be welcome news to farmers as they continue to invest in their businesses off the back of an improved 2016/2017 season, with the usual reminder to budget cautiously especially in the early part of the season.”

Chief Executive Theo Spierings says the Co-operative is well positioned to take advantage of improving demand for dairy nutrition across our ingredients, consumer and foodservice markets.

“Our forecasts are prudent given that we are still early in the season and we are starting with very low levels of inventory, and we are focused on continuing to demonstrate strong business performance so as to bring greater returns for our farmers,” he said.

Dairy industry comes together to help fight hunger in Australia

For the last six years, big players in the dairy industry including Murray Goulburn, Parmalat, Fonterra, and Lion Dairy and Drinks, have come together to help Foodbank provide more than 8 million litres of milk to vulnerable Australians experiencing food insecurity.

“Our charity partners regularly inform us that people who are struggling to put food on the table often have to sacrifice dairy products,” said Foodbank Australia CEO, Brianna Casey.

“This makes regular milk donations from the dairy industry vitally important in providing a consistent source of calcium to Australians in need.”

This financial year, the collaboration has produced one million litres of fresh milk for Foodbank’s Milk Program. On top of this, the dairy processors also regularly donate other products from their ranges such as yoghurt and cheese.

To ensure the supply has a wide reach, each partner is responsible for donating fresh milk in specific states and territories. Parmalat provides fresh milk in QLD and the NT, Murray Goulburn in NSW/ACT, Fonterra in Victoria, and Lion Dairy and Drinks in WA, SA and Tasmania

“Our annual Foodbank Hunger Report tells us that rural and regional communities are 11per cent more likely to be food insecure than their metro counterparts,” said Casey.

“In fact, more than a third of the food and groceries distributed through Foodbank’s network of more than 2600 charities goes to country Australia.

“Despite the prevalence of food insecurity in rural and regional areas, these communities are also some of our most generous in terms of donations of milk, fresh produce, eggs, and meat, so initiatives like the Foodbank Milk Program means that Australian dairy processors are often helping farmers in quite a unique way.”

The Foodbank Milk Program is one of the food relief organisation’s longest running programs. Within six years of its launch, Foodbank has been able to deliver more than 8.6 million litres of milk to Australians in need.

“The countless meaningful contributions and extraordinary community spirit shown by our milk partners, even during tough times for the industry, has ensured Foodbank can provide one of the core ingredients of a well-balanced diet to vulnerable Australians,” said Casey.

 

Dairy farmers not happy with Fonterra price plan

Victorian dairy farmers say Fonterra’s plan to only recompense suppliers who have continued to supply the dairy processor since last year’s farmgate price crisis could breach the incoming code of conduct.

As the Australian reports, unlike the other major dairy processor Murray Goulburn which has cut its clawback loan scheme for all suppliers, Fonterra will not recompense suppliers who are now supplying other processors.

Instead, the company will pay an extra 40 cents on top of its forecast farmgate price of $5.30 to $5.70 kgms to current suppliers only.

According to the United Dairyfarmers of Victoria, this is not fair for those suppliers who have left Fonterra and may breach the new code of conduct which comes into effect on July 1.

 “Fonterra has listened to industry and is taking steps to provide a more stable commercial environment for their farmers by providing an indicative forecasting for the season’s milk price,” said UDV President Adam Jenkins in a statement.

“However, this was an opportunity to draw a line in the sand and start rebuilding trust in the industry after the milk crisis, but nothing has been done to rectify the heartache caused to many farmers who bore the burden of management decisions last year.”

Jenkins said Fonterra’s refusal to compensate farmers who switched processors for financial reasons would make the dairy industry more inequitable.

“Farmers who were financially forced to leave their processors should not be forced to continue to bear the cost of processor actions and serious questions must be answered about the fairness and equity of the treatment of those who have left through no fault of their own,” he said.

“They should be paid a fair price for the milk they delivered last year and all farmers who supplied should be paid no matter who they now supply.”

As the ABC reports, a Victorian law firm is organising a class action against Fonterra for its clawback loans, with the court process due to start in July.

David Burstyner, from Adley Burstyner, is working with Harwood Andrews on the action.

Referring to Fonterra’s latest plan, Burstyner said, “It just seems to me like a shameless attempt to once again trick farmers to continue supplying and that’s a different thing to making up for short changing them last year.”

 

New Fonterra factory to boost cheese capacity

The new Fonterra cheese factory in Stanhope is expected to produce 45,000 tonnes of cheese per year for domestic and export markets.

The factory should open before June this year and dairy suppliers stand to benefit its demand for milk.

According to Fonterra chief executive Rene Dedoncker, the north Victorian factory will fill the need for speciality cheeses such as soft brie and blue cheese, which the company sees as a gap in its Australian manufacturing base.

As for overseas exports, a company spokesperson cited a growing demand for Mozzarella across Asia, particularly in China and Japan.

“The market [is] in short supply, so we expect required milk volumes to be sizeable,” she told The Australian Dairy Farmer.

Fonterra’s milk supply general manager Matt Watt said the factory will see a 50 per cent increase in capacity compared to the previous Stanhope factory, which was demolished and rebuilt after a fire caused damage throughout the plant.

“To make the most of this additional capacity, we know we’ll need to be competitive across our milk pools, and particularly in northern Victoria, to retain and attract supply,” Watt told ADF.

“We’ve been talking to farmers interested in supplying us about what we can offer them and their business. The most important way we support our farmers is by offering a strong milk price, based on the price we can earn in the global market for their milk.”

Bonlac Supply company chairman Tony Marwood said that while nothing has been signed off, it is clear that Fonterra has made a big investment in cheese in Stanhope, and that whatever deals come from the new plant, they will be fair to all suppliers.

The new factory will retain all employees from the previous factory, as well as hiring an additional 30 employees.

Michael Spaans resigns from Fonterra Board

Dairy processor Fonterra’s  Director Michael Spaans has stepped down from the Board of the co-operative with effect from 31 January 2017 due to ill health.

Fonterra Chairman John Wilson said that Michael Spaans’ tireless contribution to the New Zealand dairy industry has been significant both inside and outside the Fonterra boardroom.

“Michael, a dairy farmer, came up through the ranks, spending time on the New Zealand Dairy Group Shareholder Council and then the Fonterra Shareholders’ Council before building his governance experience outside the industry,” Mr Wilson said. “As a result, his insights and experience are invaluable, particularly on Fonterra’s Milk Price Panel, Audit and Finance Committee and the Co-operative Relations Committee.”

Fonterra said that it has agreed with Michael that, when he is given a clean bill of health, he should consider standing again for the Fonterra Board.

Fonterra also announced that the Board has appointed Mr Ian Farrelly as a Director to fill the vacancy created with Mr Spaans stepping down. Mr Farrelly spent nine years as a Fonterra Director until retiring in December 2016.

Mr Wilson said that the Fonterra Constitution allowed for an appointment to fill a casual vacancy and that Mr Farrelly’s appointment to fill the casual vacancy would continue until the 2017 Annual Meeting.

“Ian is a highly qualified director with very recent and valued experience on the Board,” said Mr Wilson. “We are very grateful that he has agreed to continue his contribution to Fonterra”.

Image: Fonterra

Fonterra posts $807 million profit

New Zealand dairy giant Fonterra has announced a 65 per cent increase in net profit after tax to $807 million (NZ$834 million) for the financial year ended 31 July 2016.

The result came despite difficult market conditions, in particular the global oversupply of milk and a drop in demand (mainly from China and Russia).

The Co-operative is paying a Cash Payout of $4.30 for the 2016 season for a 100 per cent share-backed farmer, comprising a Farmgate Milk Price of $3.90 per kgMS and a dividend of 40 cents per share, on a total available for payout of $4.41.

Chairman John Wilson said in a statement that the 2015/16 season had been incredibly difficult for farmers, their families and rural communities, with global dairy prices at unsustainable levels.

“Our Co-operative has responded. We continued with the significant and necessary changes we began in the business over three years ago to support our strategy and its priorities, and worked hard to return every possible cent of value back to our farmers.

“Our business strategy is serving us well. We are moving more milk into higher-returning consumer and foodservice products while securing sustainable ingredients margins over the GlobalDairyTrade benchmarks, especially through speciality ingredients and service offerings.”

Fonterra invests $4.3m in Tasmanian plant

Dairy processor Fonterra will increase its cheese and whey capacity at its Wynyard plant with a $4.3m investment.

The company said in a statement that the investment will increase the plant’s cheese making capacity by 8,000 MT per annum – equivalent to 30 Olympic size pools of processed milk per annum – by quickening every step of the cheese making process.

However, as the Weekly Times reports, the investment will not result in any new jobs or a need for increased milk supplies.

Fonterra Australia Regional Operations Manager South Steve Taylor says that the Wynyard factory is a key part of Fonterra’s global multi-hub strategy.

“The more we invest for growth the more competitive our business will be, putting us in a strong position to manage global volatility, pay the best possible price to farmers and the best possible returns to our shareholders,” he said.

The Wynyard plant has been running at full capacity since a fire destroyed the company’s Victorian cheese plant at Stanhope in December 2014.

The Wynyard expansion will see Fonterra’s total Australian cheese production increase by 50 per cent once the Stanhope plant is commissioned in mid-2017.

 

Fonterra axes 30 jobs from Hamilton Canpac plant

There is sadness among workers as Fonterra cuts 30 jobs from its Hamilton packaging facility Canpac.

The proposal to outsource the print and press operations were presented in mid-April, with low milk prices and dairy downturn to blame.

Union E tu has 21 of its members affected by the cut and national Fonterra advocate Fiona McQueen said there was a feeling of great sadness.

“These workers have worked together for a long time, and they’ve worked really hard,” she said.

McQueen said there will be redeployment options but there would likely not be any skilled jobs for metal decorators anywhere in New Zealand.

The union will know more about the worker’s options after future talks held with Canpac next week.

Plant E tu delegate Rachel Paul said the general mood was “like the grief cycle” where some people were “really angry, some are in denial and some are resigned and looking ahead”.

Fonterra New Zealand director of manufacturing Mark Leslie said the decision to cut jobs came from reducing demand on press and print operations and cost efficiencies of outsourcing.

With low milk prices, Leslie said it was “important we consider all alternatives that will drive cash back to our farmers.”

“We have worked closely with this group throughout the consultation period and have listened to all views to ensure their preferences could be met -be it a new role at Fonterra or the option to take redundancy should that be their preference,” he said.

Fonterra follows Murray Goulburn lead and slashes milk prices

Australian dairy farmers received another blow yesterday as dairy processor Fonterra cut the price it pays suppliers by more than 10 per cent.

The company said in a statement that it had revised its farmgate milk price from $5.60 per kgMS to $5.00 per kgMS for the current season.

Dairy farmers, who are still coming to terms with last week’s decision by the country’s largest dairy processor Murray Goulburn to cut its farmgate milk price from $5.65 to a low of $4.75 kgMS, will not be happy with Fonterra’s decision.

“The price change better reflects the reality of the supply and demand imbalance that is affecting global dairy commodity prices, compounded by the recent strength of the Australian dollar,” the statement said.

Fonterra Australia managing director Judith Swales told the Australian had been warning farmers that the price was high since last August.

“We’ve been trying to send a signal since August to our farmers — and since then global commodity prices have dropped further — so hopefully this is not too much of a surprise,” Swales said.

“We have always advised caution to our farmers; we absolutely flagged a (price rise) wouldn’t happen at the end of this year, but to expect a step down.”

Fonterra Australia is also offering its suppliers an interest-bearing support loan of up to 60c per kgMS that is linked to a supply commitment and is repayable from FY18.

United Dairy Farmers of Victoria president Adam Jenkins was not happy with the price cut.

“We understand Fonterra was trying to be transparent … but to then slash the price as far down as Murray Goulburn went and in the same week is unacceptable; it smells of opportunism,” he told the Australian.

Fonterra doubles first half profit

Fonterra, the world’s largest dairy exporter, has more than doubled its net profit despite the global fall in milk prices.

As the Business Spectator reports, the Auckland-based dairy cooperative increased net profit for the six months to January 31 to $NZ409 million ($537 million). This a 123.5 per cent increase compared to the corresponding period last year.

Other positives included a 27 per cent gain in first-half normalised earnings before interest and tax for ingredients to $NZ617 million; and a 108 per cent increase in Ebit for higher-value consumer and food service products.

Fonterra chairman John Wilson noted that the state of the global market had negatively affected farmers’ incomes. In response, he said, Fonterra had focussed on higher value and more profitable products.

“The low prices have placed a great deal of pressure on incomes, farm budgets and our farming families,” Wilson said in a statement.

“Our priority is to generate more value out of our farmers’ milk by focusing on the areas within our control.”

“We aim to efficiently convert as much milk as possible into the highest returning products.”

As the SMH reports, the company described the performance of its Australian ingredients business as “still not satisfactory”, after its gross margin dropped by 25 per cent to $NZ9 million.

The company said the European Union’s dairy industry should revert to 1 per cent annual growth through 2016 and this should help increase the global price of whole milk powder.

Fonterra opens new NZ mozzarella plant

Fonterra has officially opened a new mozzarella plant which has created 25 new jobs at its Clandeboye site on New Zealand’s South Island.

The plant has seen the company double its annual mozzarella production to 50,000 metric tonnes, over two facilities.

As stuff.co.nz reports, the opening comes at a time when local dairy farmers are being squeezed by low prices.

Speaking at the official opening, Fonterra director and Fairlie dairy farmer Leonie Guiney acknowledged that global oversupply was threatening the future of local suppliers, but added that the new plant which has been operating since last Mat was a milestone.

New Zealand Food Safety Minister Jo Goodhew congratulated Fonterra on the opening.

“I commend Fonterra’s commitment to improving food safety and standards of quality, reliability and traceability. The expansion of the Clandeboye plant and initiatives such as these help to create a business environment that delivers more jobs, higher business investment and higher wages. I’d like to congratulate Fonterra for reaching this milestone,” Goodhew said in a statement.

Fonterra finalise sale of yoghurt business

Fonterra has finalised the sale of its Australian yoghurt and dairy desserts business to Parmalat Australia.

The company said in a statement that all conditions and regulatory requirements of the sale, which was announced in December last year, have been met.

The sale includes manufacturing sites at Tamar Valley and Echuca as well as its Australian yoghurt and dairy dessert brands.

The company said the sale is part of a comprehensive plan to return the Australian business to strong and sustainable profitability.

Announcing the sale in December, Chief Executive Theo Spierings said these changes were the result of driving a clear strategic plan to transform the Australian business to deliver stronger returns to farmer shareholders and unit holders.

Fonterra and Beingmate Australian Joint Venture Formalised

The joint venture sees Beingmate take a 51 per cent stake in Australia's premier paediatric powder plant at Darnum, with Fonterra retaining a 49 per cent stake, and control of operations at the plant.

Subject to final regulatory approvals, the first product destined for Beingmate's Chinese customers is expected to roll off the Darnum line in the second half of 2016.

The Darnum joint is a key component of Fonterra's partnership with Beingmate to create a fully integrated global supply chain from the farm gate direct to China consumers, using Fonterra's milk pools and manufacturing sites in New Zealand, Australia and Europe

Fonterra tops the list of IBISWorld’s Top 100 food and beverage companies

Fonterra has remained to be on the top of the IBIS list of food and beverage companies by revenue generated.

The largest 100 food and beverage companies in Australia generate in excess of $100 billion in revenue (up from over $96 billion in 2014-15) and employ more than 130,000 Australians. 

Strong growth in food processing industries, in addition to milk production in Australia benefitting from joint ventures and expansion of airfreighted fresh milk exports to growing Asian markets has pushed Fonterra into the #1 spot for over two years.

According to IBISWorld senior industry analyst Spencer Little, industry revenue is set to decline in the beer industry as alcohol consumption continues to fall.

"The two newcomers to the list are Green's Foods and a2 Milk. a2 Milk posted revenue growth of 40.2 per cent over the year through June 2015, on the back of fresh milk exports to China and substantial sales growth in a2 Platinum Infant Formula across Australia and New Zealand," Mr Little said.

"After purchasing the remaining 50 per cent interest in the a2 Milk Company Limited joint venture and converting it to a fully owned subsidiary, a2 Milk began exporting fresh milk to China in August 2014. Sales of the company's infant formula skyrocketed in 2014-15."

Top Ten Food and Beverage Companies revealed by IBISWorld

  1. Fonterra Co-Op Group
  2. Lion Nathan National Foods
  3. Coca-Cola Amatil
  4. JBS Australia
  5. Devondale Murray Goulburn
  6. Teys Australia
  7. Bidvest
  8. Inghams
  9. Food Investments
  10. Nestle

Burra Food fight

Bids are believed to be closing this week for Burra Foods after the business was put up for sale last year through adviser Moelis and ANZ Bank.

Saputo, Fonterra and some Chinese parties are expected to be among the interested parties.

However, it is now thought that they might want to divest part of the business — possibly about 75 per cent.

Japan’s Itochu Corp is counted as a minority shareholder, and it is now understood that the majority owners, the Crothers family in Victoria, has the desire to retain its stake.

Last year there were aspirations of achieving a price for the business as high as $375m.

Burra exports about 200 million litres of milk a year and sells at least 230 million litres, achieving double-digit margins and strong earnings growth in recent years.

Annual revenue stands at about $230m to $240m, while Burra makes at least $25m in earnings before interest, tax, depreciation and amortisation annually.

Victoria’s Burra Foods recently snapped up the Gippsland assets of United Dairy Power.