Fonterra cuts dairy suppliers to save struggling organic business

By Helen Glaberson

- Last updated on GMT

Related tags Organic food Milk Fonterra

A reduction in dairy farmers and a focus on emerging markets are two strategies Fonterra is adopting in a bid to save its struggling organic business.

The dairy giant said it remained committed to organics, but that growth in the area had significantly slowed since the global financial crisis.

Hit by crisis

Packaged dairy foods prices and volumes are still below 2008 levels, said the firm, with market indications suggesting it will not recover to previous levels.

“In order to stay in organics, we have to recognise that the global market for organics has changed,”​ said Fonterra’s group director supplier and external relations Kelvin Wickham.

“Research shows people are now less willing to pay the premium for organic products,” ​he said.

In addition, consumers are gaining more confidence that everyday products are being produced more sustainably and are more acceptable so they no longer see the need to pay the premium for most organic products.”

In a move to tackle the changes, Fonterra has come up with a four point plan designed to hoist its organics business from its current loss position to a break-even situation.

Part of the plan involves a stronger focus on emerging Asian and Australasian organics markets which offer stronger returns and growth potential, according to the firm.

Cut costs

The co-operative has also decided to concentrate the organic suppliers it uses into one hub, based around Fonterra’s key certified organic processing site, Hautapu in New Zealand.

This will cut the amount of organic dairy farmer suppliers the firm uses in the North Island of the country.

Wickham said the new measures would cut transport and manufacturing costs for the firm’s organic business as farmers are currently spread across the North Island, leading to substantial transport costs.

Other plans involve reducing the amount of product processed at Fonterra’s other two certified organic sites, Waitoa and Morrinsville.

The firm said it is prioritising the organic product range to focus on cheese which, according to Fonterra, provides the best returns.

Fonterra said it is meeting with its organic famers this week to discuss the new plan.

Wickham said the firm would honour all of its organic contracts through to their formal termination dates, which in some cases are four-five years away.

He also said the firm would work with farmers as they make the transition out of the organics programme.

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