Dairy Exporter asked each for their views on the top two priorities for the board over the coming year, what strengths they brought to the board table and what challenges they saw on the horizon that needed addressing through Fonterra’s strategy.
Board chairman John Wilson has listed delivering the highest possible payout to farmers as his top priority for every year.
That meant completing the business transformation process and ensuring Fonterra management was executing the strategy in line with business plans. With current volatility, Fonterra had to be able to move quickly to capture increasing returns, he said.
He’s also set himself a personal challenge to build greater support and unity among farmer shareholders through, among other things, explaining the strategy and its results clearly to all farmers.
“Then we will have our farmers behind us through thick and thin, and we will be a forward-focused and a united co-operative – and be at our strongest.”
When asked about his strengths Wilson said he was fortunate to have led two important pieces of work for the board – milk price and capital structure – giving him a great understanding of the fundamentals of the business.
His passion as a farmer and for dairying was also a strength.
Looking ahead at challenges, Wilson said Fonterra had to continue to find ways to mitigate the massive price volatility affecting both milk price and profits.
Anticipating how significant geo-political events and regional economic forces would affect global dairy demand and supply over the next five to seven years was a must, as was being able to move quickly within the strategy to mitigate challenges and grab opportunities when significant events happened.
Sitting director Blue Read said focusing on getting sustainable cash returns to farmers while continuing to invest for the future was a priority for the coming year.
The board also had to ensure recent investments were successful and the Australian business was operating profitably again.
His strengths included a focus on and a real enthusiasm for why Fonterra was set up in the first place – to maximise sustainable returns to farmers.
“I have a long history of recognising challenges, be they structural or attitudinal, finding solutions, and playing an active part in implementing those solutions,” he said.
Read also pointed to his questioning approach as a strength along with the fact he was positive in outlook and direct in response.
“My first duty as a director is to the co-operative – my personal outlook is that if a proposal is not of benefit to farmers as owners and suppliers (not necessarily immediately) it ultimately won’t be good for Fonterra.”
In terms of challenges on the horizon, Read said given the world and world markets were volatile places Fonterra’s strategy must build on its strengths – quality milk, pasture-based systems, the scale of manufacturing and marketing, and the people within Fonterra, both farmers and employees.
“Our challenge is to grow further into adding value to milk and getting into markets where our innovation and scale give us an advantage over competition.”
Nicola Shadbolt is also a sitting director seeking re-election.
She said Fonterra had made significant investments and put its staff through quite disruptive change recently so the short-term focus should be to bed initiatives down and make sure they delivered as expected.
Less than perfect communication was identified by the board inquiry committee following the WPC80 issue as a weakness in Fonterra.
“While it has improved since then it has some way to go to get to best in class, both for our farmer shareholders and for Jo Public; we have to focus on better two-way communication through every medium available.”
Shadbolt said her strengths included the depth and breadth of understanding she brought to the board in global dairy market issues, dairying and co-operative strategy.
She referred to a recent 360-degree evaluation by her peers in the Fonterra board room that reinforced that view.
They scored her above the board norm for capabilities, participation and most importantly “power” (defined as in the best interests of Fonterra constructively challenging to ensure important issues are raised) at 8% above the norm.
“I understand the risks involved in the decisions that have been made by the board and know what will be important to Fonterra as we guide strategy delivery.”
Challenges on the horizon included the ability to rapidly translate changing consumer requirements into a marketable response from the farm right through to the end product.
“We need to be more agile and responsive as a whole. Fonterra should work in tandem with its farmer shareholders to deliver the required products. For this to happen we need alignment between all parties which means good and effective communication of the opportunities available.”
Ashley Waugh, currently the chairman of Moa Brewing and a former chief executive of Australian-based food company National Foods, is a new candidate. He and his wife own a 300-cow farm south of Te Awamutu that employs a lower-order sharemilker.
His top priorities are to improve the commercial performance of Fonterra in terms of dividend and return on investment-assets for shareholders as well as looking at strategy to ensure the long-term growth plan aligns milk growth with the ability of Fonterra to deliver better than industry-average returns for shareholders.
He lists his strengths as his extensive governance experience along with his considerable relevant commercial experience having worked in the international dairy industry.
A hefty dose of “good old common sense” is also a strength.
In terms of challenges on Fonterra’s horizon Waugh said Fonterra needed to ask the question – is a more milk volume strategy the right one?
“There has been a shift in global supply and demand for milk products with new players bringing capacity to global supply (Ireland, European Union, United States) and a strong consolidation of demand into China.
“Why do we give new milk free access to the co-op (years to share up) that drives the need for capacity expansion that weakens our balance sheet, increases interest burdens and thus takes money out of the payout?”
Waugh also questioned the level of activity in product innovation and new market development.
While he agreed consumer brand building and foodservice growth were priorities he pointed out they took time and investment.
“With so much capital going into China farms, would we be better off to divert some of that capital to building our brands for our milk in other high-value markets?
“The only way to win the battle against growing competition from foreign-owned processing companies with distribution channels direct to China is to own the brand the consumers love and trust, and perform commercially to enable Fonterra to pay the best price for milk in New Zealand.
“Otherwise the risk is you lose it,” he said
Greg Maughan farms a 125ha, 380-400 cow farm at Marton and is the chairman of the New Zealand Dairy Industry Awards and past member of Fonterra Shareholders’ Council.
His priorities for the coming year are to ensure management delivers on the strategy.
“We need to be consistently delivering on financial and growth performance and outperforming our competitors.
“Outperforming competitors gives us a huge advantage in the battle to secure milk supply,” he said.
Another priority is to build bridges between the company and farmer shareholders – especially in terms of communication.
He cited the recent communication over palm kernel use as particularly poor.
“We want our suppliers to be fully engaged in our co-operative to work as a team to achieve our goal of being the best in the world, which creates wealth not only to farmers but NZ Inc.”
Maughan said his understanding of the industry inside and outside the gate was a strength along with his ability to communicate.
He said Fonterra was in need of a major reconnect with its farmers.
“I believe I have the skills to enable this to happen as I am a farmer first and foremost with the communication skills to engage with our farmers in a manner that will be inclusive and forthright.”
He wasn’t restricted by “what a text book or a course” told him to do.
“My governance is based around my passion for and experiences in the industry. I am not afraid to ask hard questions in a down-to-earth way.”
He saw farmer buy-in to Fonterra’s strategy and a lack of delivery on that strategy as a challenge facing the co-operative. Farmers were not seeing their investment increasing on their balance sheet through share price and the return on their share price (dividend) was not reflecting the investment.
That meant more farmers wanted to divest their holding in Fonterra.
“We need to show what the strategy means for the 10,000-plus shareholders and their families. We need to show them that we are going to deliver wealth to them and we need to deliver on it.”
Murray Beach milks 120 cows on 60ha at Havelock, Marlborough.
He sees the top priority for the board is to look after shareholders so they are all treated equally.
The other priority is for Fonterra to slow up on the spending until milk prices improve. Beach put a resolution to last year’s annual meeting seeking just that but the resolution was defeated.
His strengths include “a bit of good old common sense”. He also has experience as president of two sports organisations where he said he learned the “run of the ropes” in regards to constitutions and controlling meetings.
The challenge he sees on the horizon is around supply risk and whether Fonterra can continue to service the level of debt if more farmers shift to other companies.
Beach has put forward a resolution he believes could counter the supply risk.
It’s a new share proposal that would bring in a fixed share price over a three-year period. It encourages farmers to stay with Fonterra and puts all farmers on an even playing field, he said.
It would stop farmers leaving and eliminate discontent, safeguarding milk supply.
Under his proposal shared-up farmers won’t have to buy shares for their extra effort and farmers that don’t have shares will be able to share up for $2/share.
Detailed explanation is included in the voting papers.
