Farmers call Fonterra to account in wrap-up of tough year

By PHILIPPA STEVENSON agriculture editor

Fonterra's first annual meeting was a reflection of its inaugural year - long and full of tough challenges.

At the only annual meeting he will conduct, outgoing chairman John Roadley acknowledged the extra hurdles the huge co-operative faced as it cemented the biggest merger in New Zealand commercial history.

The $50 million Powdergate illegal exporting scandal it inherited from formation companies delayed the merger and had been debilitating in the first critical months.

Roadley said the subsequent resignation of independent director Mike Smith added to his disappointment and frustration that things had not gone as well as hoped.

He apologised for problems including missed milk collections but said that by the standards of similar mergers "we have, in fact, done pretty darn well".

The merger was the right thing and much had been achieved, he said.

Roadley was to be replaced after the meeting by new chairman Henry van der Heyden, who paid a tribute that moved Roadley to tears.

Roadley was the only man who could have persuaded the formation companies to merge, van der Heyden said.

Chief executive Craig Norgate outlined the company's developing business strategy.

The seven-point plan included maintaining low dairy production, maximising returns by increasing the market focus of the product mix, and building more partnerships, such as that with Dairy Farmers of America.

The company also needed to develop innovative speciality products similar to those of the highly successful Tatua company, drive harder its NZ Milk consumer and food service business, and recognise the changing global scene in which emerging markets such as China, Latin America, Eastern Europe and India would be more important.

Norgate said there had been doubts that Fonterra could fund the alliance with Nestle in the Americas but the business had gone so well that the first stage would return the company $300 million.

"We now believe we will be able to implement the alliance in all parts of the Americas from Mexico south at no additional funding from Fonterra. And this will create a business with turnover of over $3 billion in its own right and is the market leader in every country it operates in."

The joint venture's earnings should kick in from the 2003-04 season, with an extra $22 million expected in the first year.

The high-flying messages were immediately brought to ground by the first shareholder to speak.

Others among the 1500 or so at seven video-linked venues around the country peppered their leaders with questions and criticisms for three hours.

Farmers had heard a glowing report, "but the facts are we are still the lowest-paying company in New Zealand", said shareholder Don McKenzie.

He was followed by farmers who tackled the company on the level of its executives' salaries when it also had a bill of $72 million for consultants; the gap between the company's performance and a benchmarking measurement; and the amount of product downgraded at factories.

Several shareholders praised the company's efforts in its first year while urging it to do better, including in its public relations.

After the meeting, Roadley said he was satisfied at the outcome and farmers had been firm but fair.

"We take the criticisms on the chin because they are real."

He said there was no doubt the company was on track to win back discontented shareholders.