KEY POINTS:
Fonterra must change its capital structure to secure its future in an increasingly competitive global market, chairman Henry van der Heyden says.
Speaking at the Wairarapa Chamber of Commerce, van der Heyden warned that success could not be taken for granted.
Fonterra would put more than $9 billion in farmers' pockets and inject about $3.6 billion more into the economy compared with the previous year, he said.
The company's forecast payout to farmers this season is $7.30 a kilogram of milksolids compared with $4.46 the previous season.
But he said global milk supply was growing at a rate equivalent to the entire New Zealand dairy industry each year and Fonterra had to evolve to stay in the game.
It was inevitable that the co-operative's capital structure would come underpressure from the capital needed to grow, he said.
Fonterra unveiled a preferred capital structure in November, which included listing an asset holding company, but the first vote on the change was cancelled and all options are under discussion.
"One thing's for certain, we can't do nothing," van der Heyden said.
"If we do nothing, we might as well write off the years of work which went into creating Fonterra and getting us where we are today."
Changes in the distribution of wealth, consumption and the globalisation of food were factors driving demand, he said.
The mega trends were changing the rules of the game and also exposing huge opportunities globally.
"I believe Fonterra is one of few companies which has the necessary scale, global footprint, credentials and strength to tap this rich vein for New Zealand."
In 10 to 15 years Fonterra could be marketing three million tonnes of New Zealand product and a similar amount or more from overseas partnerships, investments and alliances, he said.
Joint ventures in Chile, Latin America, the US, Europe, China and Japan had a strong outlook. Fonterra had invested in markets which were key to the future and needed to build on these positions.
Last month it bought out its major partner in Chilean company Soprole for US$201.9 million and this week confirmed it wants to buy Australian co-operative Dairy Farmers by seeking regulatory approval to bid for the company.
Push to boost milk and yoghurt production
Fonterra is spending 1.2 billion Sri Lankan rupees ($14.6 million) on doubling its yoghurt production in the island state.
And it will go head-to-head with Nestle by boosting local raw milk supplies.
The three-year project to provide Fonterra with 52,000 litres of milk daily, from 3000 local dairy farmers, will help to cushion the company against volatile international prices, an official told the Lanka Business newspaper.
"Increasing our local milk supply allows Fonterra to have a buffer against the increasingly volatile international prices for milk powders and dairy products," said Fonterra's local managing director Achyut Reddy.
"This investment is one of Fonterra's largest offshore investments."
The yoghurt market in Sri Lanka has had double digit growth in each of the past five years and consumers there are now eating more than 12,000 tonnes a year.
Fonterra's existing yoghurt factory near Colombo has a capacity of six million cups a month but a new production line will boost this to 13.5 million.
To procure the necessary raw milk, Fonterra will establish new collection centres throughout the country, starting with more milk for yoghurt, and packing capacity will be boosted during the second year.
The company also plans to provide local farmers with technical assistance on increasing production, pasture management and breeding as well as micro-finance schemes to expand their production capacity.
Sri Lankans consume nearly one billion litres of milk each year, but the island produces only 200 million litres, and imports the rest from New Zealand and other sources.
Nestle is already producing its own milk in Sri Lanka, collecting 35 million litres a year, through 500 collection depots and 75 chilling centres.
- NZPA
