Dairy giant needs more than cosmetic surgery

Farmers also need to consider how realistic their expectations are for a company structured to their conservative demands. Photo / Christine Cornege

Fonterra management had no choice but to restructure. It is a logical response to a commodity price slump and is the inevitable reaction to the failure of the brands business to come to the rescue with big dividends.

But it is cosmetic surgery for a patient that requires much more fundamental medical attention.

However many millions of dollars cuts might save, this is a multi-billion-dollar business. Cutting middle management won't fix Fonterra's problems. Nor will changing the CEO.

The problems at Fonterra are structural. The company has always struggled to balance the demands of the commodity business with its consumer-focused brands business.

Sadly, 14 years after foundation it has made little progress towards resolving this tension.

The businesses have different risk profiles, different capital requirements and compete for resources and attention from the board and CEO. The brands business needs to grow.

Fonterra management is likely to have plenty of examples of growth stories in this business but the reality is it hasn't, as reflected in the dividends and current pricing of its NZX-listed units.

It looks increasingly like its farmer shareholders made the wrong choice in 2009 when they voted down former chairman Sir Henry van der Heyden's proposal to fully split into two companies and then partially float the brands business.

What we have now is a watered-down version which retains all the internal tensions without fully unlocking the potential.

Big salaries and corporate trappings like high-quality human resources are easy targets for shareholder frustration.

But farmers also need to consider how realistic their expectations are for a company structured to their conservative demands.

If Fonterra is to really soar, only its farmer shareholders have the power to let it.