Fonterra confirms closure of cheese plant

Fonterra says moving production to other sites would deliver "significant savings". Photo / David Kerr

Fonterra has confirmed it will close its cheese plant in the South Island town of Kaikoura next month as it strives to make the business more efficient in the face of low milk prices.

Cheese processing previously done at the Kaikoura site will be split between Fonterra's Lichfield, Clandeboye, Stirling and Whareroa cheese plants, where cheese production is up to 16 per cent more cost effective than at Kaikoura, the Auckland-based cooperative said in a statement.

The Kaikoura plant is open for three to five months a year, and had employed 22 full-time staff, half of which wanted to be redeployed elsewhere in the company.

Last year Fonterra made 835 people redundant as it underwent a major restructuring in the face of falling global dairy prices and it has said 'business transformation' initiatives were expected to increase recurring cash benefits of $340 million a year and contribute to both 2016 earnings and the farmgate milk price.

The cooperative this month cut its payout to farmers for this season to $3.90 per kilogram of milk solids, below industry body Dairy NZ's estimate of the $5.25/kgMS needed by the average farmer to break even.

"While it is difficult for the people involved, we have a responsibility to our farmer shareholders and unit holders, and our customers to be as efficient as possible across our business, especially given the low milk price," said Mark Leslie, Fonterra's director of New Zealand manufacturing.

The final day for processing at the site is expected in mid to late April.

Units in the Fonterra Shareholder's Fund, which gives investors access to the cooperative's earnings stream, gained 0.2 per cent at $5.85. They've fallen by 2.5 per cent since the start of the year, outperforming the broader S&P/NZX50 Index's 4 per cent decline.