International dairy prices could fall if the West slips into another recession but the long-term prognosis for the sector is good, says Theo Spierings, new chief executive at dairy co-operative Fonterra.
"When you look [out to] 2020, long-term perspective, demand in the world is going to outpace supply so in that sense long-term I don't see a big issue in dairy and also not for prices in dairy," Spierings said in his first media appearance yesterday.
"But short-term if the West goes into a recession again ... it could be a huge emotional reaction with people not spending.
"So there is volatility in the market and the volatility will increase if more is going to happen in Europe and United States," he said.
"Some people are saying already that we are on the edge, or even over the edge, so we have to take it seriously."
Spierings, who took over at Fonterra this week, was acting chief executive of Royal Friesland Foods and in 2008 led that company into a merger with Campina, creating Royal FrieslandCampina - the world's fifth biggest milk processor.
Dairy demand would grow by 160 billion litres by 2020, with New Zealand's supply expected to rise by 5 billion litres - 3 per cent of the total, Spierings said.
"I do believe that the co-ops in the world are very well placed because they have the ability to control the whole chain.
"We are in the good position that our shareholders supply capital but also supply milk," he said.
"I do see potential for Fonterra to use the integrated business model in other areas of the world linked to other milk pools."
Fonterra last week posted revenue for the year ended July 31 up 19 per cent at $19.9 billion.
Profit was up 13 per cent at $771 million.
The company had strong positions in South America, a successful operation in China and business in Southeast Asia and the Middle East, Spierings said.
"I would say these are strongholds and there you have to look [at whether] we can even make it stronger by looking at this integrated model and doing more than what we are doing now."
Fonterra was the envy of the dairy world, Spierings said.
"The whole portfolio, when you look at the chain from the farming model, to milk available, to the integrated model that you can run really from grass to glass, to your customer base but also the location in New Zealand.
"If you put those strengths all together there's a fantastic challenge and opportunity and that's why I call it the envy of the dairy world globally," he said.
The challenge and opportunity was to build another layer of value in the business on its strengths, Spierings said.
"The vision is a natural source of dairy nutrition for everybody, everywhere, every day," he said.
"That is a very ambitions and strong vision but I do believe that Fonterra can really make New Zealand the dairy nutrition capital of the world ... based on its strength and based on the business it's running at the moment."
Spierings said he was not a "change manager".
"I don't like to come in and say, 'Change', because change means that the people were doing something wrong. I'm more build and grow."
The first 30 days in charge would involve meeting stakeholders and "feeling the pulse of the co-op, farmers, employees and other stakeholders and then translating that into a strategic workshop, a framework ... what do we have on the table, what is the direction, what do we go for and what do we stand for?"
Spierings has arrived at Fonterra with the co-operative planning a change in capital structure aimed at removing redemption risk and providing permanent share capital, with farmers buying and selling shares among themselves rather than with the company.
Protecting capital and equity, and reducing redemption risk was crucial, Spierings said.
"Because if you don't do that you de-stabilise the co-op and therefore the business," he said
Fonterra Shareholders' Council this month said there had been discussion in some quarters that trading among farmers was a threat to farmer ownership and control.
"Do we need to keep 100 per cent control and ownership with the farmers? Yes, we have to," Spierings said.
"The more stable the co-op and the more you safeguard the strength, the easier it is for management to build another layer of business and value."
New Fonterra chief executive.
Born: The Netherlands in 1964.
Family: Married with three children.
Education: MBA, Glasgow University.
2007: Acting chief executive of Royal Friesland Foods.
2008: Oversaw merger with Campina.