Attending to DetailSunday, Mar 2, 2003
Fonterra is still under attack from groups dismayed at the projected levels of payout for this season. And now that projected payout reduction that is being further exacerbated, by the current dry spell which is reducing prospective dairy incomes for this season.
It seems that Fonterra is still unable or unwilling to explain its production, sales and marketing processes in a fashion that satisfies its critics who are now developing an irrational expectation of the functions of this international marketer of dairy products.
That Fonterra’s task is complex is an understatement. Putting aside the issues of understanding its foreign exchange policies and their cumulative effect on payouts over the longer term, Fonterra deals in the real world of international commerce. For commodity trading in other than the protected “privileged” quota markets each sale made is as the result of a negotiation or tender that is accepted or rejected on the day.
Fonterra’s problem is the expectation of its members for payout stability when the market yields a fluctuating return from year to year. Even if, and its most unlikely, 100% of Fonterra’s production was sold in consumer form there would still be a fluctuation in the farm gate price for milk from year to year. This fluctuation caused by changing costs in the processing and marketing channel and then compounded by currency fluctuations and the timing of sales..
The prime confidence issue for Fonterra is accountability to its shareholders. But for the word accountability to have meaning it must be backed by substance in the information presented to suppliers. That Information is needed to enable producers to judge how they should react to the future effect of the company’s policies and strategies in the total market.
Fonterra is currently presenting an image of a company in retreat.
A retreat from growth plans and objectives for international market share that, no matter how unrealistic, were believed to be achievable by promoters and producers as they pressed for reforms of the old industry structures.
A retreat from the efficiencies of manufacturing scale and management that was exampled in the models for financial gain from the new Fonterra.
A retreat from the promise made to shareholders for their early inclusion in the progress or failure of the fortunes of Fonterra and its effect on results.
Fonterra is showing some of the characteristics of a certain company of NZ sailors. The promise is there; the good people are onboard; the equipment is said to be the best, but in the excitement of being new team to an old success, the attention to detail is not up to par.
Asset stripped to an overseas buyer is an unthinkable outcome – but beware…