The Economy Hub: Has Fonterra got its strategy wrong?

Fonterra has not proven to the public that its current strategy is the right one, says Brian Gaynor, executive director of Milford Asset Management and this week's panelist on The Economy Hub.

"The questions I have and what I can't understand is why they are buying farms and developing farms in China . I would have much prefered to see them developing their consumer product business," he said.

On the latest extra episode of The Economy Hub, guest panelists Brian Gaynor and Fran O'Sullivan discuss whether the fallout could have been avoided.

Gaynor: "They were forced to do certain things under the Act and the requirements, but there are other things that they weren't forced to do that there are question marks over."

Fran O'Sullivan said she believes the dairy co-operative has underestimated the quota in Europe.

"In my view, Fonterra has been a victim of several of its own self-inflicted wounds on the bio-security point of view. The upshot of that was its major market China started to de-risk away from New Zealand, so they've invested drying capacity in to Europe and set up supply lines with dairy farmers in America.

"As Bill English also said the other day, 'the international game has changed, they don't have it to themselves anymore."

Earlier this week Fonterra announced another cut to farmer payout, now sitting at $3.90 per kg of milk solid. This is the second cut to this year, dropping below the previous forecast of $4.15 per kg of milk solid.

Fonterra expects its own milk production to be at least 4 per cent lower than the previous season, with local farmers culling herds and reducing supplementary feed.