Fonterra looks to replicate co-op structure abroad

Fonterra hopes to accelerate plans over the coming years to expand its co-operative structure to some of the other major dairy producing countries around the world, chairman John Wilson said.

Wilson said in an interview that such plans had been talked about for a number of years and that any possible changes were still years away, but that such a move would help to secure milk supply.

As it stands, Fonterra takes in big quantities of milk from farmers in Chile, Brazil, and other countries in Latin America under its Dairy Partners Americas joint venture.

Across the Tasman, Fonterra is the second biggest dairy company after Murray Goulburn.
"We believe that there is the opportunity in some geographies to have some sort of sub-co-operative structure with Fonterra," Wilson told the Herald.

"That would have a different capital structure and different organisational features in every geography," he said.

"But certainly, it is something that we believe we would like to accelerate over the coming years," he said.

"It's not something that is going to happen over the next few days, but we certainly believe in the importance of Fonterra being able to secure globally form farmers who feel part of the wider co-operative ," he said.

"It does not appeal to all geographies, and certainly not to all farmers, but we believe that there is an opportunity to provide that (Fonterra) linkage," he said.

Wilson said any changes would not be at the expense of existing New Zealand-farmer only structure.

"In no cases will they be the same as Fonterra," he said. "The average (New Zealand) farmer has about $900,000 invested in Fonterra, so every solution will be unique to that geography, but certainly we believe that there is potential to evolve that over time," he said.

Fonterra reported a 2 per cent lift in its net profit after tax to $418 million for the half year to January 31.

The co-operative maintained its dividend at 20 cents a share but cut back its earnings-per-share forecast for the full financial year to a range of 45 to 55c a share from a previous forecast of 50c to 60c share, reflecting its concerns about the impact of more volatility on earnings over the remainder of the financial year.

Its farmgate milk price forecast for 2016/7 was maintained at $6.00/kg of milksolids.
Wilson said the 2 per cent improvement in the net profit figure was against the background of a huge gain in milk prices, which are the biggest input cost for Fonterra.

Key whole milk powder prices recovered sharply over 2016 - trading at US$2062 a tonne in July through US$3593 a tonne in December.

The latest GlobalDairyTrade price for whole milk powder has come back to US$2855/tonne but it remains high relative to recent history.

Its once loss-making Australian operation had remained in the black but Wilson said it would take another six to 12 months - allowing for the rebuild of the fire-damaged Stanhope plant - before the business there could get fully up to speed.

In New Zealand, better-than-expected weather means Fonterra expects milk collection to fall by just 3 per cent this season compared with an earlier forecast of a 7 per cent fall.

Fonterra said it remained confident in its farmgate price of $6 per kg of milksolids for this season, but Wilson advised that farmers would need to continue to "budget cautiously".

Wilson said challenges lay ahead in the second half, arising from the higher-than-expected milk collection.

"The impact of more volatility in product stream returns in our ingredients business, some tightening of margins in the coming months, and the potential for extra milk in the autumn could result in some pressure on our earnings in the second half," he said.

The co-operative Fonterra continued to cut is debt - its gearing ratio ration falling to 46.6 per cent compared with 49.2 per cent in the first half of 2016.

Fonterra's units, which trade on the NZX, dropped 4c to $6.18 after the result.