16 Jul 2015

Fonterra job cuts: Challenging conditions

1:57 pm on 16 July 2015

Fonterra revealed in early June that it was in the process of restructuring its operation and that hundreds of support jobs would go.

Fonterra chief executive Theo Spierings announces a large profit fall with chairman John Wilson, left, and chief financial officer Lukas Paravicini, right.

Fonterra chief executive Theo Spierings (centre) with chairman John Wilson (left) and chief financial officer Lukas Paravicini in 2014. Photo: RNZ / Kim Baker Wilson

The dairy co-operative brought in external consultants to review its operation as it faced growing criticism from its 10,500 farmer shareholders across the country.

Falling global prices for milk, an oversupply of milk on the world market and subsequent poor payouts to farmers have been taking a toll on the company.

During last night's global dairy auction, prices fell for the ninth time in a row.

For dairy farmers, the still-to-be-confirmed payout for the season just gone was $4.40 per kilo of milk solids with a dividend of 20 to 30 cents per share on top of that.

For the current season, the forecast is $5.25. Analysts have estimated a dairy farm needs $5.50 to $6 to break even.

Fonterra sign

Photo: 123RF

This compares with a record payout of $8.40, with a 10 cent dividend on top of that, for the 2013/14 season.

Fonterra, which is the world's largest exporter of dairy products, employs 18,000 staff worldwide - of which 11,500 people are in New Zealand.

The company was created by the Dairy Restructuring Act, which came into effect in 2001.

It was formed through a merger of the two largest milk co-operatives, New Zealand Dairy Co-Operative and Kiwi Dairy Co-operative, plus the New Zealand Dairy Board.

Food safety scares posed challenges

Fonterra faced a big challenge in 2013 when a botulism scare saw China ban all imports of milk powder from New Zealand.

Testing later found no grounds for any concern but the incident still risked damage to the company's reputation - and that of New Zealand.

Baby formula made by Fonterra was pulled off the shelves of this Wellington supermarket last year after suspected contamination of the product.

Baby formula made by Fonterra was pulled off the shelves of this Wellington supermarketin 2013 after suspected contamination of the product. Photo: AFP (FILE)

Fonterra was fined nearly $300,000 dollars for breaches to food safety laws.

The company was also at the centre of a 1080 contamination scare at the end of 2014.

Fonterra, along with Federated Farmers, received letters containing a concentrated form of 1080 with a threat to use it to contaminate infant formula unless New Zealand stopped using the poison for pest control.

The letters were received in November but only made public in March.

A police investigation was launched but no one has yet been held accountable for sending the letters.

No contamination of infant formula occurred.

Fonterra operates 26 manufacturing plants: 18 in the North Island and eight in the South Island.

Its corporate head office is in Auckland and it has an operational centre in Hamilton and a marketing and innovation centre in Palmerston North.

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