Fonterra picks an early recovery from its $1.3 billion price plunge

By Nick Stride

Friday 17th May 2002

The "unprecedented" plunge in commodity prices would take $1.3 billion out of dairy farmers' pockets in 2002/03, Fonterra chief executive Craig Norgate said this week.

In a speech to a farmers' conference at Ruakura, Mr Norgate said the price falls had been driven mostly by increased subsidies in the US and the European Union.

Prices had fallen below the level economic fundamentals appeared to justify, he said, but there was a chance they would recover quickly.

"We think - and I stress think - that the commodity price cycle is speeding up, and there is a chance that prices will recover faster than they have in the past. But no one should bank on it and it is no compensation to farmers facing severe cuts in returns for the season ahead."

Fonterra was working to develop its business in ways that would provide greater stability for farmers' incomes through the price cycle. One way was to safeguard New Zealand's productivity competitive advantage in high-quality bulk ingredients.

In the future the fastest growth would come from the speciality businesses in the developed world and in the consumer goods business among the growing middle classes in developing countries.

Fonterra's "Project Galileo" strategy-planning exercise was reviewing the global environment, Mr Norgate said.

Among other priorities was the completion of the North and South American joint venture with dairy products giant Nestle. Mr Norgate said he expected to be able to provide details "in the next couple of months." The current focus was on finalising commercial valuations in countries such as Brazil, Argentina and Venezuela.

Another priority was "also one where I have to be deliberately vague" - the integration of Fonterra's Australasian portfolio.

"A key characteristic of successful consumer goods companies - our aspiration - is they have a strong home market. In New Zealand the former Dairy Board didn't have a home market at all. And New Zealand's small size means that it alone does not provide the market base we need. For that reason we define our home market as including Australia."

Australasian Food Holdings, including Mainland, Tip Top and Peters & Brownes, was already the largest Australian consumer dairy business.

Fonterra was considering how to organise those assets and others, such as a half-share in Bonland and 18% of National Foods.

"Beyond that there may be other opportunities in Australia that we want to pursue because, aside from US and EU subsidies, it is Australasian production which has the single biggest impact on world market prices," Mr Norgate said.

Comments from our readers

No comments yet