The instinctive reaction is to ask why Fonterra is making a loss when the dairy industry generally in New Zealand is going gangbusters and new processing plants and packing facilities are popping up all over the place. However, to be fair to Fonterra, it has legal obligations, such as those to supply milk to competitors and to collect milk, that don’t limit other companies. Although it can adjust its product mix, it can’t pick and choose and single out lucrative products the way its competitors can.
That’s not to say, though, that farmers and investors don’t have legitimate concerns. They are entitled to ask if Fonterra is getting the best it can from what it’s got. The answer to that is clearly no, particularly in the case of Beingmate, which Fonterra’s leaders themselves describe as unacceptable.
The Government is now doing a wide review of the DIRA and the dairy industry. That and the pending departure of Fonterra chief executive Theo Spierings make it a good time for Fonterra to have a review of itself from its basic philosophy – that being as simple as to best serve the interests of its farmer suppliers, though that is blurred by its obligations to investor shareholders – to its marketing and overseas investments strategies.
With Beingmate on their minds, farmers will want to know what they can expect from a deal with South American firm SanCor and the possibility of offering co-op membership to Australian farmers. These are decisions not to be taken lightly and Fonterra must tell its Kiwi farmers how these things will benefit them. One of the most common criticisms from farmers is they don’t know what’s going on. Fonterra’s results announcement recognised that but said it was limited by market rules on what it could say.
Despite the existence of investor shareholders Fonterra’s first duty is still to its farmers. Without those farmers there are no profits for its investors.
Stephen Bell
