Present and former contractors have contacted him with examples of Fonterra’s hard-nosed approach to cutting costs and staff numbers.
That included on-call contractors having to wait up to 28 days for a Fonterra order number before invoicing, after which the relevant 30-day or 60-day payment period began.
Lockhart conceded Fonterra was doing what its shareholders, financially distressed farmers, expected it to do in a downturn – cut costs and save money.
His beef was with the way it had acted and the reputational fallout.
“I spent a couple of years on the board of Greenlea Meats and founder Peter Egan said two things were vital.
“An order number should be available immediately on a job being done or goods provided and payment on the 20th of the month following was sacrosanct.”
Fonterra’s chief financial officer Lukas Paravicini said back in November he intended to reduce the number of local suppliers and Lockhart said a large number had since been cut.
The dairy giant would continue to spend on goods and services in the regional economies, through fewer contractors.
A business receiver had contacted him to say three lower North Island businesses were being wound up as a result of Fonterra’s actions.
The saving on 700 jobs from Fonterra itself would be $50 million-plus a year.
“But that raises the question why those people were employed in the first place, that they can be cut without affecting capacity.”
Lockhart also questioned whether global dairy prices would recover quickly or linger at present levels for 18 months or two years.
Massey colleague, agribusiness professor Hamish Gow, who is in the United States, said the feed/milk price ratio was so favourable US dairy farmers would produce another wave of more milk.
“These dairy giants, the US and Europe, are waking up and NZ farmers must take notice.”
Lockhart agreed that if the price downturn was cyclical, prices recovered to $6/kg or more and investment poured back into NZ, Fonterra’s repositioning would have been good business practice.
Its balance sheet would be stronger, processing capacity had been built to cope with more milk, and input costs had been controlled.
