By Bernard Hickey
Fonterra's new chief executive, Theo Spierings, has signalled a review by Fonterra of the price of milk for consumers in New Zealand.
Spierings told a news conference on his third day in the job that he was bothered by a fall in New Zealand consumption of milk and realised consumers were concerned about how expensive milk had become.
He said Fonterra would take the issue "back to the drawing board" for review.
“The perception is the price is too high,” he told reporters at his first briefing for media since he started as CEO on Monday. He replaced Andrew Ferrier, who retired on Friday after 8 years in the job.
“It’s bothering us. We will take a fresh look at this issue - take it back to the drawing board," he said.
"We do believe that as the leader in dairy nutrition in the world in the communities and the countries where we operate in we have to make sure the consumption per capita is growing, not declining," he said.
Spierings pointed out the highest consumption of dairy products per capita was in Holland, where the population was also the tallest: "And you need it for your rugby game."
He gave no details. The price of fresh milk has become a political issue, with the parliament’s commerce select committee conducting an inquiry and a separate inter-departmental officials group reviewing the raw milk regulations and Fonterra’s enabling legislation.
Spierings, who has been in the job three days, said he did a tour of retailers last weekend to check prices of dairy products available to consumers.
“What you do see is a wide assortment and competition in the offerings,” he said. “It is a normal retail scene. But the perception is the price is too high and perception is reality.”
Fonterra needs to take the issue seriously because it needs to ensure consumption continues to grow rather than risking decline.
The briefing comes a week after Fonterra reported record sales and profit, and its biggest-ever farmer payout. In a season of superlatives, milk production and exports also hit record levels. See more here in our article last week.
The company reiterated its forecast for its payout to decline in the 2012 season as global economic growth falters and Northern Hemisphere producers increase output.
Long term strong, short term volatile
Spierings said the long-term outlook for dairy product demand is bullish. Global demand is forecast to grow by 160 billion litres by 2020 while New Zealand’s production is expected to grow by five billion litres.
Long term, demand is definitely outpacing supply, he said. “If short-term there is a deep recession, the second in three to four years, that could have an impact like it did in 2009. You could see commodity prices coming down for a short while.”
Europe’s debt crisis could have been avoided “with the right measures” though the many voices and viewpoints in the region have hampered the process, he said.
Fonterra was “so big, so important” that it is intertwined with New Zealand economy in the same way as Nokia was to Finland and Nestle to Switzerland, he said. “It brings a responsibility with it.”
Spierings said it was Fonterra's responsibility to be a strong company for New Zealand and to protest New Zealand's reputation for a clean, green environment.
(Updated with video, comments, quotes, detail)
(With Business Desk)
47 Comments
Funny that , Fonterra has always claimed that the domestic milk market is basically irrelevant , and insignificant . Hence their take- it- or- leave- it monopoly pricing policy.
Maybe we should start importing milk from Europe , where it is much cheaper.
One cannot help but notice that advert on TV where the sheep farmer in shorts walks into an expensive French restaurant " takes" the NZ LAMB back home .
This only happened after the Global financial crisis when demand for NZ Lamb in Eurpoe slumped
If Gummy recalls , the Commerce Commission opposed the formation of Fonterra as a monopoly , controlling nearly 100 % of the NZ dairy industry . But Helen Clark directly over-ruled them , believing that NZ dairy farmers were best served by trading under one export banner ....
..... no one seems to have given a second thought to the NZ consumer ...
And the SANLU debacle , showed how incompetent the board of Fonterra really are , how close they came to destroying our image as a clean supplier of a wholesome food product .
.. Fonterra had put the entire NZ dairy industry at risk . .
Yep..I think thats about the way it went....think it's in here somewhere....
http://www.massey.ac.nz/~cprichar/303cm/303cm_fonterraclips.htm
Yeah... and don't forget the the NZ owned "Dairy Board" became a part of Fonterra.
U think Fonterra could have had more of a Social Consience towards the NZ consumer..... considering they were given legislative advantages and a marketing machine built up over many years by the Govt...
Ahh.... maybe they forgot
The Dairy Board was a Govt entity... just as all electrical generation capacity was....etc
I take your point.. but u can just as easily swap the word "funded" with the work "tax"...or "levy".
That was not a good reason it should have been "returned to the farmers".
U can apply your logic to all taxes paid.. eg road user charges.... and all Govt entities....
ALSO... it was not returned to the farmers... It became Fonterra....
Oops ... u are right.... I was using poetic licence to make my point.... not good .. :)
My Dad was a farmer at the time and was concerned that the farmers would lose their "voice" with the formation of Fonterra.. and that too many eggs in one basket is a dangerous thing.. ie. Dairy board etc.
The Dairy board was "returned to the farmers"... ( as u put it )... with the view of a Fonterra coming into existence.... ( My Dads view.... which I agreed with )
I'm not arguing whether that is good or bad.... but that Fonterra is the beneficiary of some support from Govt... in the form of the Dairy board...and special legislation.... and that is reason enough to have a social consiense..
Gummy,
I have a different view on Sanlu.
I think Fonterra did the right thing in a bad situation. Everyone in China knows the foreign joint venture partner has no control. The local partner is in control.
Fonterra and Clark blew the whistle via the top leadership to stop kids being hurt. It cost Fonterra the thick end of NZ$200 mln.
Chinese people saw this and now believe Fonterra and New Zealanders actually care more about consumers than their bottom line. It was actually the best piece of marketing spend New Zealand has ever done. I reckon it was bigger than 100 % (and more genuine).
The best evidence of this is that there are now limits on the number of cans of baby formula you can buy at the supermarkets near Auckland Airport because Chinese tourists are so desperate to get their hands on New Zealand baby formula.
cheers
Bernard
John Hudson and his team of the 'Sunday' programme at tvnz ran an award winning story on Sanlu... "Bad Milk"
http://tvnz.co.nz/content/2203262/2591764/video.xhtml
enjoy!
Sorry Boatman, incorrect analogy. Demand for NZ lamb in Europe hasnt slumped. True that volumes are down 20% into uk/europe but only as a result of much lower supply and increased shipments to the US and Asia. As a result we are able to pick and choose whom we supply and command much higher prices for our product.
Let me guess, after a long investigation they will conclude that the price we pay is fair. This "issue" conveniently follows on from the rugby jersey "debacle" to keep the sheeple distracted from real issues being debated and should prevent anything else substantial cropping up before the election.
And of course the main stream media will do its part getting people worked up about it, that you can count on.
They should just make it so NZ pays less that the world price, since it is grown and supported in NZ, and it is appears to me to be like a monopoly. I was setup so NZ farmers could compete with the rest of the world, but it has obviously caused this distortion in NZ They do the same thing with oil in some of the arab countries. Otherwise we may as well just import it from cheaper countries. I am sure chinese or argentinian milk could be cheaper.
The dutchman is buttering up all the stakeholders. Key and his corporat mates are trying to destroy the co-op and get their greedy fingers on the wealth created by generations of NZ dairy farmers,with bugger all direct Govt. assistance. Anyone figured out why Westland,Tatua,open country,synlait,etc don't sell any fresh milk on the NZ local market ?A hint . It has something to do with profitability.
Thanks Bernard for at providing some perspective re: Sanlu.
As for the rest of you - lets try and cut the tall poppies down as we like to do in this country.
And read fonterras publicly available milk price manual - its makes it very clear how the milk price is set even to the most simple individuals in the press.
Mind you, it wouldn't be any fun for you lot if our most successful and largest exporter was actually doing a fantastic job and taking their corporate responsibility very seriously.
Christov,Tommy B's reply even if it was copied from Fonterra's website doesn't mean its not valid. The kick start breakfast programme has passed its one millionth meal provided. Perhaps u R too well off to feel the benefit of Fonterra's assistance. It also has a sponsorship programme to which schools can apply to for funding.
Tankers containing water are supplied free of charge whenever there is a major problem with urban water supplies.
In Christchurch:
Fonterra's Search and Rescue team worked at finding victims in the rubble.
Provided tankers and water.
Provided dairy e.g milk to the community evacuation centres.
Fonterra, its shareholders & staff donated in excess of $5million cash.
Many of its farmers were part of the Farmy Army.
I don't know where u live, but I invite u to go to the Fonterra website and look to see where the nearest Fonterra Shout is taking place to you on October 24th. It is a Family day out. Do let me know how u enjoyed it. ;-)
CasO. While I apreciate the feel good oportunities Fonterra seize upon to enhance the brand please don't forget ANZ have been more than a little generous when the need arise.
My point was, feeling good about Fonterra and how it benefits us all is not reflected amoung NZers as a demographic ...I'm happy a poll would reflect that to be a true statement.
Fonterra behave like a corporate in every sense of the word / Charter if you like....Their primary objectives are not necessarily in the interests of New Zealanders and that will be reflected when conflict arises over advancement of it's monopoly.
So what is that .?...doing whats best for us because we don't know what is best for ourselves ...?.while people (real live ones too) struggle from week to week barely able to afford the staples because the Export values have priced them out of the market.......ya see...! they just don't get that...! all they know is they pay a ridiculous price for milk ,cheese, cream,baby formula...bla bla bla
Incidentally those with far greater knowledge than myself will soon disprove the Fonterra push for "Cleaner Greener produce"....oh yes they throw a lot of money at branding that image....but it don't stack up when you measure farm leech polution levels around those cleaner greener pastures.
Yes I have toured the Fonterra website..prior to today ,it is what I would expect a corporate to have as a front door to the World...but you know they put the trash in the alley an it's gotta go somewhere right.
P.S. Was having the commerce commission over-ruled to get their way in the best interests of New Zealanders....................really?
Ask some farmers if ANZ 'are more than a little generous when the need arises' and u will have them choking on their cuppa. So I guess it depends on where one sits. Fonterra doesn't supply tankers and water to urban councils for any feel good factor. It does it because councils have no one else who can supply bulk water at very short notice.
I have heard that Fonterra has a positive profile in Christchurch.
Get ready to take on the sheep and beef industry Christov. The most significant group for non compliace for keeping stock 3m from a waterway in Southland, were sheep/beef farmers grazing dairy stock over winter. Likewise cattle in streams. A considerable number of sheep/beef farmers rely on taking in dairy grazing for income. These folks are not covered by the clean stream accords so their cattle can freely access/pollute waterways with no penalty.
Be careful what u wish for. Fonterra freezing the price of milk is seriously hurting the likes of Goodman Fielder.So Fonterra is damned if it does and damned if it doesn't.
Bernard perhaps your journos could look into just how close Goodman Fielder is to breaching its Bank covenants.
Christov Fonterra is a private company and I am a sme business owner. Why should I,and the likes of Steven who is a non-dairy user,subsidise ur purchase of liquid milk when u have a cheaper alternative, powdered milk, available but u choose not to use it.
In two separate retail shops I have seen 2 x 2 litres of milk for $6.50. Checkout the deal the warehouse has -4litres milk,2 loaves of bread plus 500gm anchor edam all for $15. Milk freezes well so u can stock up wen its on special. Meat companies pollute waterways and u pay export price for meat so why r u not complaining about that?
Fonterra is paying $1.8b to its farmers on 20 Oct. That is a benefit to NZ.
CasO...thank you for a considered response....now I do take it you have no personal interest in Fonterra or indeed gain benifit from any of their profit ..is that correct...?
That said we agree that all those responsible should foot the clean up...we agree that the meat industry is just as amok as the milk....in terms of pricing.
We don't agree that Fonterra is some kind of benevolent monolith wandering about looking to do good deeds at random......and please don't be so high handed as to suggest well if they cant afford my profit let em eat milk powder,,...ever had any..?...it's not good
Please don't tell me like the idiot below to go buy imported meat because its cheaper...the only thing that disenfranchises people from localy produced produce is.. that middle men as an organised marketing outlet can get a better price for it elsewhere..
So lets cut the sanctimonious crap shall we...all I said was Fonterra behave exactly as I would expect a corporate to behave ...where the bottom line is to maximise profits back to the shareholders.
End of Story.
My own kids like powdered milk and use copious amounts of it at times. I also have farming friends who use only powdered milk when the cows r dry. Living in the country away from convenience stores perhaps makes us less fussy in 'fresh' over powdered milk, not Sanctimonious. My point is consumers have choices.
A farmer recently said that if we hadn't formed Fonterra then the industry would be split over more coops and ir would make it much harder for us to be vilified in the media. That farmer is correct. But as farmers those of us who choose to supply Fonterra are better off for it. The fact that we do get a hard time shows that Fonterra is a success and that Tall Poppy Syndrome is very much alive and well.
CasO...I can see why you would say TPS..but in this case it's the cheap shot.....I'm not a fan of tails that wag dogs....I'm not keen on institutionalising their Corporate input to become Govt.agenda's....I don't accept that we as a Nation recieve the benefits of their success (trickle down or otherwise).
Now, knowing you are a recipient of the collective good fortune...I can fully understand your position and support in your own best interests.
But for my part there is another side to this Juggernaught you have created...it will have it's Frankenstien outcomes as it deviates into other realms of monetary indulgence...we'll have
a lookie see then uh..
I'm getting the glimpses of it now...indicating a willingness to flex it's muscle when the occassion presents itself.
I respect your defense of your interests.....good luck to you.
In many oil producing nations fuel is absurdly cheap. In Venezuela it's 4 NZ cents a litre. In Saudi Arabia it's 16 cents .
http://www.staveleyhead.co.uk/utilities/cheapest-petrol/
Why can't there be a domestic pricing structure for milk in this country? New Zealand consumers should receive a discount on milk prices relative to the global price.
To start with I think the cost of petrol in Saudi is tax free.....so its the actual cost to produce....
2nd I dont think there should be a subsidy on a product, that means someone else is paying the balance. If you are a non-milk user like myself why should I pay for you to use milk? or are you happy to subsidize my soy/rice milk consumption to compensate?
I would suggest neither works.....so the best way is to get away from a monopoly rent situation and get to competitive markets.....so you end up paying cost plus a profit margin.
regards
I don't have a problem with pollution cleanup costs being met where it falls so long as it is applied to everyone-urban councils included. It may result in more expensive vegetables. Commercial growers of carrots use up to six times more fertiliser per hectare than dairy farmers.
When you have a monopoly and can charge a monopoly rent then thats a tax on fair price.....lets talk about being in a competitive environment.
Personally I dont think dairy farmers should be subsidised in their production, ie they should be paying for the all the environmental damage they cause....so cows pooping in the rivers and nitrogen run off is costed and the cleanup met by those farmers.
Personally considering milk is nothing more than a fat delivery mechanism and worse is probably leeching calcium from our bones I reckon its price should be doubled.....
regards
Steven read my comment above about whose cows are pooping in rivers. Personally I don't believe any stock should be in waterways and it wouldn't surprise me if in time we see a change in the way regional councils are made up, in the future. Down our farms way its not nitrates that are the waterway problem its phosphate. There's a lot of education to b done in some parts of the country on environmental resources. At a gathering in the North island recently I cringed when I heard a farmer remark 'if the resources are there, why shouldn't we use them'. Thankfully I believe these folk are becoming the minority.
I am not a Dairy farmer but people should stop complaining about the price of milk they should import it them selves if they can get it cheaper overseas Just like the pork.thats why we have very few pig farms now Milk t is cheaper than some water that is for sale and cheaper than a loto ticket
Well they call it the free market we have to operate in it they bring grain in as well as pork mutton at times if you can buy milk cheaper some where in the world import it The producer in NZ has a lot of buracratic bull shit it has to work with that overseas producers don't
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