Fonterra cuts organic milk production

The organics market has been hit by the global financial crisis. Photo / Christine Cornege

Fonterra is cutting back on organic milk as the global financial crisis and changing consumer preferences depress demand for the product.

The dairy co-operative was meeting organic farmers this week to discuss a four-point plan aimed at turning the business from a loss-maker to one breaking even, said Fonterra group director of supplier and external relations Kelvin Wickham.

The organics market had been hit by the global financial crisis and market indications were it would not recover to previous levels, he said.

Research showed people were less willing to pay a premium for organic products.

"All categories felt the effects but particularly the category in which we sell, packaged dairy foods, where prices and volumes are still below 2008 levels.

"In addition, consumers are gaining more confidence that everyday products are being produced more sustainably and are more acceptable so they no longer see the need to pay the premium for most organic products."

The company's North Island organic suppliers would be concentrated in one hub around its Hautapu processing site, which would reduce the number of organic suppliers, while the amount of product processed at its two other certified organic sites at Waitoa and Morrinsville would be reduced.

The organic product range priority would be cheese, which provided the best returns.

The plan also included focusing on emerging Asian and Australasian organics markets where there were stronger returns and potential for growth.

There would be a considerable transport and manufacturing cost saving, Wickham said.

"In addition, focusing most of our organic product through a single site will mean we are able to create efficiencies of scale in processing the milk."

Fonterra general manager of milk supply Steve Murphy said the company was committed to an organic offering.