A former director of Fonterra has called on chairman John Wilson to "move on" after what he said was the co-operative's ongoing underperformance.

Fonterra this week issued its nine-month business update which featured a strong farmgate milk price but which also highlighted a downward pressure on the company's earnings.

Taranaki-based Harry Bayliss, a founding director who served on the board from 2001 to 2006, sent an email to existing board members on March 31 calling for Wilson to step down. A spokesman for Fonterra said it had no comment to make.

Bayliss told the Herald today he had problems with Fonterra's performance on a number of fronts.

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"There has been opportunity for the board to really focus on value-add, and I just don't believe - for a number of reasons - that they have been able to achieve that," he said.

"I honestly believe that the chair needs to be held accountable in that regard," he said.

"He needs to be prepared to put his hand up say 'I will be held accountable for this' and move on."

Bayliss, pointing to the WPC80 product recall and subsequent $183m settlement with French food group Danone, and the ongoing underperformance of China's Beingmate, in which Fonterra has an 18.8 per cent stake, meant it was "necessary for someone to speak up".

"I want to emphasise that this is nothing personal against the chair, but his role meant that he had a huge impact on the strategic direction of the company and I think that it is most apparent that it has not been performing well," he said. "We need a change of culture at the head the governance body."

"As much as anything, the board has been focusing on issues that have not been creating sufficient value," he said.

"They have been diverted by various issues over a number of years, and this has led to the company not performing to a level that I believe that its capable of," he said.

"It's not necessarily the direction, it is the culture of the way it is performing," he said.

Bayliss said Fonterra needed to develop a culture that was inclusive - that was "prepared to take on board constructive comment and criticism".

"I don't believe that we have got that at the moment and haven't had for quite some time," he said.

Harry Bayliss, a founding Fonterra director who served on the board from 2001 to 2006, sent an email to existing board members on March 31 calling for chairman John Wilson to step down.
Harry Bayliss, a founding Fonterra director who served on the board from 2001 to 2006, sent an email to existing board members on March 31 calling for chairman John Wilson to step down.

Bayliss said he remains a shareholder in Fonterra but that he was "at the point of exiting".

"I have no axe to grind other than wanting the company to go forward very well," he said.

The ongoing underperformance China's Beingmate , in which Fonterra has an 18.8 per cent stake, was indicative of Fonterra's wider issue of problems Fonterra's strategic direction.

Wilson has served on the Fonterra board since 2003 and became chairman in 2012.

This week, ratings agency S&P Global said Fonterra's credit ratings had not been affected by the co-operative's earnings downgrade, even though it expected its debt threshold to be exceeded in the current financial year.

Fonterra on Wednesday increased its milk price for the current season to $6.75/kg from $6.55/kh but said it expects to be outside its target end-of-year gearing range of 40 per cent-45 per cent.

The group announced a further reduction in its full-year dividend range from 25-30 cents to 15-20 cents as it grappled with the higher milk prices, which affect its input costs, and compressed margins abroad.

Fonterra revised its earnings per share for 2017/18 down to 25-30c per share. That compares with 46c in 2016/17 in 2016/17 and 51c in 2015/16.

"It's a very poor result. It illustrates once again that it is incredibly hard to forecast the equity performance of this business," Harbour Asset Management senior analyst Oyvinn Rimer said.

"The milk price is the key reason why the margins are been crushed," he said.

"It begs the question as to whether they can recover in the second half and I think that might not be the case," Rimer said.