The trends accurately predicted in the V3 strategy written in 2012 have accelerated and the co-op must respond.
He said the main driver was the growing demand for dairy products in emerging markets, outstripping supply growth.
China and Russia are the main importing countries in the world, each taking about 1.5 million tonnes annually, or 12-13% of global imports. The next largest importers, Mexico, Indonesia and Saudi Arabia, are less than one-third of China’s or Russia’s demand.
When the payout forecast was pegged in December, because of the disparities between Fonterra’s processing capabilities and those of the theoretical most-efficient competitor, senior management began a review of the company’s strategy. The high-level view was of worldwide supply, demand, consumption trends and the available milk pools internationally.
In February Fonterra’s planners looked at the strategic choices for its processing assets, product portfolio and options.
Now the review had moved on to strategic implications for company structure, capital and resources, Spierings said.
“Where do we put new assets, in-market or here in NZ?” he asked.
“We cannot rely only on NZ milk – so which milk pools in other countries do we develop and what assets do we put in those countries to produce which products?”
China’s net imports of dairy products have now grown to more than 20% of its consumption or about 12 billion litres of milk equivalent. NZ’s milk powder sales doubled from 2012 to last year.
The short-term projection is that import demand will grow to be something approaching the size of NZ’s annual production.
This country is already the largest foreign supplier to China, with dairy trade worth $4.5b annually, so Fonterra’s strategic review is very much focused on its response to China’s growing demand.
The current plan is to grow Fonterra farm milk supply in China to 1b litres annually by 2020.
Chairman John Wilson said about 20% of Fonterra’s sales are made to China, a proportion he is comfortable with. Similar rates of demand growth are occurring in the Middle East, Africa and other Asian countries.
Fonterra is focusing on five priorities identified in the V3 strategy:
• Optimising global ingredient sales and operations.
• Growing in everyday nutrition.
• Continuing the foodservice growth momentum.
• Capturing high margins in advance nutrition.
• Expanding beyond NZ by investing in milk pools.
