Fonterra has cut 523 jobs as the company tries to reduce its payroll bill by up to $60 million a year.

Chief executive Theo Spierings said the news had been unsettling for the people affected but the co-operative had to change if it was to remain strongly competitive in the global dairy market.

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"Reducing the number of roles in our business isn't about individual competency; it is about continually improving the way we deliver performance," he said in a statement.

Fonterra said the "disestablishing" of the more than 500 roles - which it said will cost it between $12 million and $15 million - was part of an ongoing business review.

The review includes measures to improve profitability at Fonterra's Australian business as well as a series of moves across the organisation.

Fonterra said that the affected staff would begin to leave the co-operative in September.

Mr Spierings said staff had been informed that consultation on new business structures would begin on August 5.

The affected roles included administration roles, sales and ingredients, consumer, marketing, research and development, communications, health and safety, food safety and quality, group resilience and risk, property, procurement and change management.

It is understood employees have known about the changes for three weeks - but they are unsure if their jobs have been targeted.

Employees entering and leaving Its Fonterra head office on Princes St in Auckland refused to comment on the situation.

One employee said there were a number of meetings happening at Fonterra today.
"Changing times," he said. Another employee said he could talk about any other subject but Fonterra.

A spokesman said staff had not been told not to speak, but had been alerted that media were outside.

The spokesman said he could not confirm whether there would be further job cuts when consultation kicked off again on August 5.

He also could not say whether the next round of consultation would be on the same scale.

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Last year the company had 2590 New Zealand staff paid more than $100,000 or more per year and 17 staff earning more than $1 million, according to its annual report.

The dairy giant plans to create more marketing roles so it can sell its products better into overseas markets, where it also faces increasing competition from its rivals.

Mr Spierings, who earns $4.18 million a year, told media last month the company was in the middle of a major review, which began in December, to restructure the company's management team.

The changes would mean hundreds of job losses for its 1500 head office and support function staff, as the company focused on marketing and sales.

The job losses come as world dairy prices continue to sink with prices in the latest GlobalDairyTrade auction falling 10.7 per cent to US$2082, the lowest level since July 2009.

Spierings was travelling and unavailable to be interviewed.

Fonterra has had a history of knee-jerk reactions like that where it gets rid of a whole bunch of people and then two years later hires them back again, or rather having got rid of people with institutional knowledge, they hire new graduates who can't do as good a job.


Units in the Fonterra Shareholders' Fund fell 0.2 per cent to $4.76, and have declined 21 per cent this year.

A Federated Farmers Confidence Survey for July out yesterday showed most dairy farmers expect their profitability to worsen this season and are braced for a potential fall in Fonterra's opening farmgate milk price of $5.25 per kilogram milk solids.

Weaker dairy prices have prompted analysts to pull back their expectations for Fonterra's payout this season, with most now expecting this year's payout will be below last year's, which is likely to put pressure on farm incomes and see debt levels rise. Fonterra's next opportunity to revise the forecast is at its August 7 board meeting.

The market is also now expecting more aggressive interest rate cuts from the Reserve Bank which is scheduled to review interest rates next Thursday.

See the recent decline in world dairy prices here:

Federated Farmers said top management should be leaving Fonterra Group if results don't start improving in the next couple of years.

Fed Farmers dairy chairman Andrew Hoggard said he hoped the job losses were part of a wider strategy to redirect resources in new areas rather than a knee-jerk reaction to cut costs as dairy prices continue to fall.

"Fonterra has had a history of knee-jerk reactions like that where it gets rid of a whole bunch of people and then two years later hires them back again, or rather having got rid of people with institutional knowledge, they hire new graduates who can't do as good a job," he said.

Mr Hoggard said farmers have invested a lot of money in Fonterra in the past decade and expected within the next two years for the decisions made by top management on where that money was invested to start paying off.

"If we don't, you'd have to say getting rid of a lot of mid-level people were the wrong ones to go. It should be the people at the top making those decisions that pack their bags. It we don't see some sign of improvement and those investments start to pay off in the next couple of years, then some serious calls need to be made."

Newly-elected Fonterra Shareholders' Council chairman Duncan Coull said Mr Spierings and his team were employed to make decisions that were sometimes difficult.

"The focus at this time needs to be on ensuring that our affected staff receive all the support they require," he said.

See Fonterra's statement here:

-with BusinessDesk