The reorganisation of Australian operations was highlighted in his presentation, following the loss of infant formula business with Danone and a fire at the Stanhope cheese plant in northern Victoria.
The contribution of Australian operations to Fonterra’s 2015 first-half earnings slumped and Paravicini said at the time that despite all of the efforts in the past few years Australia remained a market that needed further remedies.
Australian operations lost $84 million gross margin in the first half of financial year 2015 compared with first half 2014.
To the Macquarie conference he listed recent improvements and further plans.
At the top of the list was the new ranking of being number one supplier to Coles supermarkets and the private label supply agreement with Woolworths supermarkets.
But he did not say what was to be done with the yoghurt business, which has lost market share. It accounted for about a fifth of total product tonnage, mainly in non-Fonterra brands made under licence for Nestle.
Fonterra’s Australian exports would in future favour cheese and infant formula, a product optimisation that Paravicini called a $50m earnings opportunity.
To replace Danone as the major customer, because of the legal dispute following the botulism scare, Fonterra had bought 18.8% of Chinese infant formula company Beingmate.
Beingmate would source 30,000 tonnes of infant formula a year from Fonterra Australia “over time”, Paravicini said.
The Darnum plant in Gippsland, Victoria, had been sold into a joint venture with Beingmate although Fonterra would continue to manage the plant.
Fonterra Australia chose not to participate in the recent scramble among processors for about 200m litres of milk supply when United Dairy Power (UDP) collapsed in South Australia.
Farmers who had supplied two UDP plants in SA had only three days notice to sign up with a number of alternative processors, including Murray Goulburn, Warrnambool Cheese and Butter and Parmalat (Farmers Weekly, May 4).
“We chose not to go after the bulk of UDP milk because it does not suit out supply needs and it was too expensive given the current market returns.”
Bruce Donnison
Fonterra
“We chose not to go after the bulk of UDP milk because it does not suit out supply needs and it was too expensive given the current market returns,” Fonterra Australia’s director, ingredients and operations, Bruce Donnison, said.
“The UDP milk is a flatter curve which means it is priced higher than the average cost of milk and much of the South Australian milk is too far from our collection zone.”
In the Macquarie conference address Paravicini said Fonterra Australia collected 1.5b litres of milk annually, compared with 18b litres in NZ.
NZ peak processing capacity would increase by 5% for the new season and by the planned 10% for the 2016-17 season when compared with 2013-14.
Capacity would be close to 100m litres a day at peak in 2016-17.
The Pahiatua and Edendale expansions would be operational in August and the giant new Lichfield powder drier, capable of producing 30 tonnes an hour and using 4.4m litres of milk a day, would be ready for the 2016 spring.
The Lichfield dryer was a $390m investment, placed to draw on the expanding Central Plateau dairy conversions from forestry.
