Fonterra levels local playing field

By Felicity Anderson, Nzoom.com Business News Editor

Tuesday 16th October 2001

New Zealand Dairy Foods says it can now operate on an even playing field domestically following the signing of key supply and brand licensing contracts with Fonterra.

Peter McClure, Chief Executive of New Zealand Dairy Foods says Fonterra must charge New Zealand Dairy Foods the same transfer price for raw milk and other ingredients as it does its own subsidiary, Mainland.

The 10-year contracts cover costs for supply of raw milk, cream, butter and cheese, as well as licensing the Chesdale brand.

Licensing agreements for the Anchor, and Fernleaf brands were signed some months ago.

The contract follows the passage of new legislation covering the creation of Fonterra from the New Zealand Dairy Group, Kiwi Cooperative Dairies and the New Zealand Dairy Board and the estblishment of regulations on how it is able to operate.

"These contracts have a huge impact on how we operate and to finally have them in place brings far greater certainty to our whole business," McClure says. "Internationally Fonterra might be larger than New Zealand Dairy Foods but in New Zealand we are competing on a level playing field and we intend to be the biggest player in this market."

Another important feature of the new agreements is that New Zealand Dairy Foods will now have better forward visibility on the cost of raw milk.

"The previous situation of retrospective pricing for raw materials was hopeless and cost us dearly," McClure says." We were in the unacceptable position of not knowing the true costs for raw materials.

"We therefore worked hard to reach agreements that would remove these uncertainties so we can now manage our business in a way most other industries take for granted."

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