Fonterra Cooperative Group, the world's biggest dairy exporter, is shaking up its organics business to refocus supply in the central and lower North Island, leaving Northland organic farmers out in the cold.

The cooperative will renew organic milk supply contracts ending this year for two years in Manawatu, Taranaki and Wairarapa and three years for farmers in Waikato and Bay of Plenty, it said in a statement.

Northland suppliers won't have their contracts renewed, while those farmers whose contracts expire in the next two financial years will be updated next year.

"Eighteen months ago we were losing money, so we restructured the business to focus on markets in Asia, while reducing our costs to ensure ongoing profitability," Fonterra nutrition managing director Sara Kennedy said. "We want to ensure we build a business that is sustainable."


Fonterra scaled back its unprofitable organic dairy operations in 2011 as public appetite for premium products waned in the wake of a protracted downturn in the economy. The cooperative cut back processing capacity and concentrated most of its North Island suppliers around its Hautapu processing plant in Waikato.

Since then, the organics operation has returned to profit as Fonterra focused on supplying protein-hungry Asian markets, China in particular, Kennedy said.

Fonterra will meet with farmers in Northland, Waikato, Manawatu and Taranaki over the next two days to give them a full update on the organics operation.

Kennedy said the cooperative is conducting a "thorough review" of the business to ensure it can cope when international markets settle down.