Supplier dissatisfaction has been brewing for some time but has come to a head with this season’s low payout and low dividend, she said, prompting talk among farmers of making changes at the board table and some fiery shareholder meetings.
“There may be enough unrest to make changes, but the question is who is going to stand? I see people positioning themselves.”
Rowarth said farmer anger has been fuelled by what many see as detached Fonterra management focused on growing milk supply offshore while introducing policies and supply conditions on local suppliers that were divorced from the realities and costs of NZ farming.
Some concluded the co-operative was no longer their ally acting in the best interests of its owners.
She cited Fonterra’s requirement to introduce new chilling requirements on vats. Installing the new chilling equipment required some farmers to upgrade their electricity supply at a cost of $30,000 while the move to five-axle tankers has required some farmers to widen their turning bays, in some cases requiring them to move buildings.
Similarly Rowarth said the banning of inductions was based on the opinion of a visiting vet from the United Kingdom who told Fonterra there was no need for inductions, an opinion she said was based on European farming systems not NZ’s pastoral conditions.
She said farmers felt Fonterra should have ignored or fought that advice because of its irrelevance and implications for livestock culling and livestock carrying numbers.
There was also a view that Fonterra was not helping farmers with effluent management.
Rowarth cited examples in Waikato where Fonterra environmental managers made farmers build greater effluent storage than required by the regional council. In one case it cost $100,000.
Compliance had financial repercussions and Rowarth said she had seen a survey which showed the average cost of dairy farm compliance for the last three years was $135,000 a farm.
But those respondents were not confident their farms would still comply in five years and believed they needed Fonterra’s help to ensure proposed rules were needed, practical and workable.
Farmer dissatisfaction reached boiling point with this year’s low payout and dividend, a financial matrix she said was confusing, counter to what farmers understood and expected, and led to the conclusion Fonterra was using the money for its offshore investments instead of paying a reasonable dividend.
“There may be enough unrest to make changes, but the question is who is going to stand? I see people positioning themselves.”
Jacqueline Rowarth
Waikato Management School
“What Fonterra has done is to make big changes by trying to secure global milk supply and a global milk platform by taking on supply overseas. NZ supplier-shareholders would say if they came to the home farms, their home business would be better off.”
Rowarth, a co-owner of a dairy farm who unsuccessfully stood for the Fonterra board in 2012, said when it was formed Fonterra initially fulfilled its promise and its potential by making a global statement that NZ was an international dairy player.
The co-operative also worked hard on its relationship with the 10,500 supplier-shareholders, but that role had started to wane with moves such as trading among farmers and investing in China meaning NZ momentum was lost and dominated by powder production.
“All Fonterra has done in NZ is drive volume.”
The company structure was complicated and its accounts were difficult to comprehend.
Rowarth said she asked some accounting academics to analyse Fonterra’s accounts and they declined saying it would take too long to decipher.
The shareholder’s council was described as toothless and because the accounts and company structure were so complicated, they were not able to communicate effectively with shareholders.
To turn around this dissatisfaction, Rowarth said Fonterra needed to improve its head office staff’s understanding of NZ farming systems so they made better decisions.
Graduates who have gone to work in Fonterra tell her head office staff question why farms are only seasonal suppliers.
“If they don’t understand it and been on farms and understand our systems, how can they do a good job?”
There needed to be a better flow of information, more detail on its long-term strategy, its plans for producing higher valued products and to use NZ’s provenance for marketing.
There also needed to be a better mix of skills on the board.
When the botulism scare erupted, Rowarth said two phone calls confirmed to her that scientifically the claim of contamination was impossible.
Fonterra’s handling of the incident showed a lack of scientific expertise in senior management.
“Farmers are beaten up by all of these things coming in and without any logic as it applies to NZ and dairying as well.”
