Fonterra Improving Farmers’ Share of Value along the · PDF fileFonterra –...

Fonterra – Improving Farmers’

Share of Value along the Chain

Meeting of the OECD Food Chain Analysis Network (FCAN)

Confidential to Fonterra Co-operative Group

30 October 2013

Dr Francis Reid - Policy & Advocacy Manager - Europe, Russia & MEA


A farmer co-operative with roots in heartland

New Zealand…

HEALTHY

ENVIRONMENT

HIGH RAINFALL

AND MODERATE

TEMPERATURES

PASTURE

GRAZING

FARM

MODEL

CREATED IN 2001.

MERGER OF TWO

CO-OPS WITH OVER

100 YEARS OF

DAIRYING

TRADITION

CO-OPERATIVE

OWNED BY 10,500

FARMER

SHAREHOLDERS

FONTERRA

COLLECTED 17

BILLION

LITRES IN NZ

(2012)

4.5m COWS

AVERAGE

HERD SIZE –

386 COWS

17,300

EMPLOYEES


USA

Sri Lanka

Ecuador

Colombia

Argentina

Brazil

Chile

Malaysia

Saudi Arabia

Venezuela

With a global footprint of processing facilities

DairiConcepts

50/50 JV with Dairy Farmers

of America

9 sites

Cheese, powders, cheese

concentrates, milk protein

concentrates, functional

dairy replacement systems,

hard Italian cheese

New Zealand

Australia

11 sites

Fresh milk,

powder, cheese,

ice cream and

yoghurt

Australia

Malaysia

2 sites

Canned milk powder,

fresh milk, UHT, cultured

products, acidified milk

products

Colombo

Milk powder in

sachets, fresh

milk, UHT,

cultured products

Saudi NZ

Milk Products

100% Fonterra

Processed

cheese, sachet

and canned milk

powders, Feta

Soprole

99.4% Fonterra

Consumer dairy

producer – milk,

UHT, yoghurt,

spreads,

desserts

Prolesur

JV with Soprole

Cheese, milk

powder, butter,

whey permeate

powders

Dairy Partners America

50/50 JV with Nestle

13 sites.

Collection and processing

fresh milk. Manufacture of

dairy products, marketing and

distribution of ingredient

commodities and consumer

goods

Indonesia

New blending

and packaging

plant announced

April 2012.

Indonesia


SHAREHOLDERS’ COUNCIL 35 shareholders elected

by the shareholders.

Shareholder advocacy group

BOARD OF DIRECTORS 13 Directors

(9 farmer elected and 4 appointed)

MILK COMMISSIONER Appointed by Shareholders Council.

Mediates disputes between the

shareholders and Fonterra

FONTERRA CO-OPERATIVE GROUP

10,500 New Zealand dairy farmer shareholders

Fonterra’s structured - farmer control assured

CEO Appointed by Board of Directors

FONTERRA MANAGEMENT TEAM Appointed by CEO. Total of 11 direct reports

FONTERRA COOPERATIVE GROUP

FONTERRA STAFF Around 10,000 in NZ sites, 7,000 based in offshore sites


Rabobank Global Top 20 Dairy Companies 2013

Rank Company Country of

Headquarters

Turnover (USD)

1 Nestle Switzerland 30.1

2 Danone France 19.4

3 Lactalis France 18.0

4 Fonterra New Zealand 16.0

5 FrieslandCampina Netherlands 13.5

6 Dairy Farmers of America US 12.1

7 Arla Foods Denmark/Sweden 10.8

8 Dean Foods US 8.8

Source: Rabobank


Source: Fonterra Internal

0

10

20

30

40

50

60

70

80

90

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

Vo

lum

e (

m lit

res

/da

y)

2011/12

2012/13

2013/14

Fonterra’s New Zealand season milk volume


Global dairy prices are highly volatile


Fonterra’s payout to farmers varies in line with

international prices

(1) Cents per share

(2) $ per kgMS

(1)

(2) (1)


Fonterra’s seven strategic paths

1. Optimise New Zealand milk

2. Build and grow beyond our current consumer positions

3. Deliver on foodservice potential

4. Grow our position in mobility

5. Develop leading positions in paediatrics and maternal

6. Selectively invest in milk pools

7. Alignment of business & organisation to enable strategy


Global Milk Production – top 25 producers 2011

0

20

40

60

80

100

120

140

160

Mil

lio

ns

MT

Total World Production 711 Million MT of Milk Solids



Global dairy exports in 2012 accounted for ~8.5%

of global milk production



The rise of emerging markets has created a demand

led economy for dairy

MENA

2%

4%

10%

India

7%

7%

China

4%

2%

LATAM

2% 2%

ANZ

1%

1%

Nth America

<1%

1%

Europe

<1%

Outlook to 20201

ASEAN

2-3%

4%

Demand Growth Supply Growth Demand Volume Supply Volume



Key influences on international dairy prices

International dairy prices

Global demand

Exchange rate

Supply shocks e.g. weather,

disease, quality issues Is the market

open on commercial

terms?

Is the market being

distorted by policy?


Key influences on international dairy prices

International dairy prices

Global demand

Exchange rate

Supply shocks e.g. weather,

disease, quality issues Is the market

open on commercial

terms?

Is the market being

distorted by policy?

Improved policies can have

the biggest impact here


WTO Simple Average of Applied MFN Tariffs for All

Non-Agricultural Products, all Countries


WTO Simple Average of Applied MFN Tariffs for All

Agricultural Products, all Countries


WTO Simple Average of Applied MFN Tariffs for

All Dairy Products, all Countries


What are the impact of these policies on dairy

market prices?


Impact of these policies on butter was even more

pronounced


Fonterra’s Guaranteed Milk Price Pilot Programme

helps suppliers manage milk price volatility

• Fonterra is running a Guaranteed Milk Price (GMP) Pilot Programme in the 2013/14 season

which will offer New Zealand farmers the opportunity to lock in a fixed (or ‘guaranteed’) milk price

for up to 75% (and not less than 10%) of their milk supply for the season.

CR&T Portfolio

Management

Shareholder GMP

Contracts

Customer Forward

Contracts

Commodity Markets

NZX, CME and Eurex

Exposure to rising

commodity prices

Exposure to falling

commodity prices

Fonterra’s GMP programme uses a

portfolio approach to manage risk


Conclusions

• Farmer owned cooperatives have the interests of farmers at their heart

• Key to value creation is maximising price achievement for finished

goods

• Barriers to trade and other policies that unnecessarily or arbitrarily

restrict trade or marketing of products prevent value creation

• Removing trade barriers and market distortions are key ways that policy

makers can help to create value for agriculture producers

• Allowing markets to operate efficiently also promotes efficient use of

resources and innovation, as well as encouraging the development of

market-based risk management tools


Thank you

Fonterra Improving Farmers’ Share of Value along the · PDF fileFonterra –...

Documents

Transcript of Fonterra Improving Farmers’ Share of Value along the · PDF fileFonterra –...