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Questions raised about Fonterra following NZMP resignations


Thursday 24th October 2002

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One dairy industry observer is questioning the direction of giant co-op Fonterra following two more resignations from its subsidiary, New Zealand Milk Products (NZMP).

On Monday Fonterra announced it was re-absorbing NZMP, the world's biggest dairy ingredients business, downgrading it from a stand-alone unit.

NZMP's heads of finance Peter Schuyt, and human resources Jackie Lloyd, resigned last night, following the resignation on Monday of NZMP chief executive and Fonterra deputy CEO Chris Moller.

Dairy industry analyst Tony Baldwin, leader of the Producer Board Project Team in 1999, said issues of power, strategic focus, and governance were re-emerging for Fonterra.

"On the governance, I think they're responding to clear concern that NZMP has underperformed, the shareholding council showed it was quite inefficient, and I think this is Henry van der Heyden the new chairman saying we're going to try and respond to that," Mr Baldwin told Radio New Zealand today.

"The other thing it signals is they are really concentrating on their commodity business. The merger was promising a platform for growth into more value-added products like (independent dairy company) Tatua, and bio-nutrients and pharmaceuticals and so on, and bringing in outside capital.

"Fonterra is a closed producer co-op which is quite parochial and quite insecure about having outside capital.

"This is really saying, the heart of our business is commodities, and that raises questions about the strategic purpose of the merger which was to go beyond that," he said.

"It is a very closed and insular approach, and hopefully this isn't signalling a retrenchment because what they've promised the Government and the public in bypassing the Commerce Commission a couple of years ago was growth into high value areas and a more international approach to business with outside capital."

Fonterra's success was "absolutely pivotal" for New Zealand's economy, Mr Baldwin said.

"One in every five dollars we earn overseas comes from Fonterra, turning grass into milk.

"If they can strip out costs, that's a positive thing, but if it's at the price of looking outside NZMP, staying parochial and looking at the interests of just New Zealand farmers, then that would be a concern."

A Dominion Post source said yesterday the restructuring would save $60 million to $70 million a year.

The move heralded a dismembering of the traditional Wellington power base of Fonterra predecessor, the Dairy Board, which has resided at Pastoral House near the Beehive for decades, Mr Baldwin said.

Fonterra has said 30 duplicated executive jobs will be axed as NZMP is brought directly under the organisation's corporate heads, instead of maintaining its base in the former Dairy Board's Wellington high rise.

But the Dominion Post newspaper has reported that as many as 250 jobs will eventually be lost, and another 150 will be relocated to Hamilton or Auckland.

Chief executive Craig Norgate yesterday described as speculation the report that up to 400 jobs could be lost from Wellington , but admitted it was possible.

The move north of staff from NZMP follows similar moves north from Wellington in the past two years by Tranz Rail, Enza, WestpacTrust and TelstraClear.

Wellington's loss could be Hamilton's gain with the 150 jobs potentially adding millions of dollars to the city's economy. Fonterra's annual report showed seven people earned more than $700,000 with nine of them paid more than $1 million.

Hamilton Mayor David Braithwaite said he would seek a meeting with Fonterra about the number of jobs coming to the region.

"Obviously if it's true it would be positive news for the Waikato. We would welcome the return of the dairy base to the Waikato."

Waikato Chamber of Commerce president Steve Saunders said the city would benefit hugely if top-earning executives were transferred to Hamilton.

"There's all that extra disposable revenue," he said. "We would welcome them with open arms."

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