Fonterra Co-operative Group Limited: Difference between revisions
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Revision as of 20:56, 22 July 2023
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| Type | Publicly listed cooperative |
|---|---|
| Industry | Manufacturing, retail |
| Predecessor | New Zealand Dairy Group Kiwi Co-operative Dairies |
| Founded | 16 October 2001[1] |
| Headquarters | , New Zealand |
Area served | Worldwide |
Key people | Miles Hurrell, (CEO) [2] |
| Products | Milk, butter, cheese, yoghurt |
| Brands |
|
| Revenue |  NZ$22.95 billion (2022)[3] |
| NZ$1.02 billion (2022)[3] | |
 NZ$0.58 billion (2022)[3] | |
| Total assets | NZ$18.78 billion (2022)[3] |
| Total equity | NZ$6.91 billion (2022)[3]
(Revenue and Operating income is from continuing operations) |
Number of employees | 19,608[4] |
| Website |
|
Overview
Fonterra Co-operative Group Limited, together with its subsidiaries, collects, manufactures, and sells milk and milk-derived products. The company offers milk powders, butter, and cheese products. It also engages in the consumer goods and foodservice businesses. In addition, the company operates 66 Farm Source retail stores; and engages in farming of fresh milk. It provides its products primarily under the Anchor, Anmum, Anlene, NZMP, Farm Source, De Winkel, Fresh 'n Fruity, Kapiti, Mainland, Mammoth, Perfect Italiano, Piako, Primo, and Symbio brands. The company has operations in New Zealand, China, rest of Asia, Australia, the United States, Europe, Latin America, and internationally. Fonterra Co-operative Group Limited was incorporated in 2001 and is headquartered in Auckland, New Zealand.
Fonterra was formed by the amalgamation of predecessors New Zealand Co-operative Dairy Group Ltd, Kiwi Co-operative Dairies Ltd and New Zealand Dairy Board in 2001. The establishment of Fonterra was seen as a state-backed national firm for the dairy industry [1].
Prior to Fonterra being founded in 2001, the NZ Dairy Board was the only legal exporter of dairy. The uniting of these three companies was on the basis of implementation of the Dairy Industry Restructuring Act (DIRA) in 2001 which aimed to improve efficiency and international competitiveness of NZ milk and milk products. More importantly, it allowed for the merging of the three predecessors to form Fonterra, as well as removing the solitary export power from the NZ Dairy Board to allow other companies to export their dairy products internationally [1].
Brands
- Anchor - products ranges from all forms of dairy milk, butters and cheeses. With subbrands -
- Anchor Boneeto - flavoured milk with nutritional boosts sold in Indonesia
- Anchor Food Professionals - B2B dairy products and ingredients to bakeries and foodservice professionals
- AnchorFernleaf - dairy products targeted for Southeast Asian market
- Anlene - number 1 milk brand across Southeast Asia
- Perfect Italiano - culinary cheese and ingredients using italian cheese-making techniques
- CalciYum - flavoured yoghurts and milk drinks target towards kids in NZ
- Mainland - cheese ranges
- Chesdale - sliced cheese brand targeted for kids
- Kapiti - crafted ice cream and cheeses
- NZMP - dairy ingredients sold to food manufacturers including standard dairy ingredients (milk powder and butter) to functional ingredients (proteins in sports drinks)
- Anmum Materna, Essential and Lacta - nutrition for women during pregnancy and infants
Corporate Structure
Shares listed on NZX and ASX freely traded like listed securities. However, outside investors not allowed to hold shares can invest in Shareholders’ Fund to gain economic rights (e.g. distributions and capital movements similar to shares).
Appointed to Fonterra Shareholders’ Fund board in November 2020 and became Chair in November 2022. Currently is Chair of AIG Insurance New Zealand Limited, and an Independent Director of Kiwibank Limited, and Kiwi Property Group Limited.
Miles Hurrell - CEO
Appointed in 2018. Previously COO at Farm Source, managing the production process from farmers to the 70 retail stores. Also has held leadership roles globally within Fonterra Co-op before becoming Chief.
Neil Beaumont - CFO
Joined Fonterra in 2023. Previously was CFRO of Canadian Pension Plan Investment Board, Canada’s largest investment fund, as well as roles at BHP, Australia and KPMG, Canada.
Anna Palairet - COO
Acting in June 2023. Prior careers spanned Australasia's largest multinational firms including 16 years at Air NZ. Rejoined dairy industry in October 2022 as Global Supply Chain director before becoming COO.
Market
Dairy sector in NZ
Fonterra operates in the dairy sector, which contributes 5.3% of NZ’s nominal GDP and 23% of NZ’s gross export value [2]. The dairy sector is critical to NZ’s economy, with it being the biggest export income for the country. Further, NZ being the largest milk exporter in the world, contributing 23.6% of global milk exports [4]. Pre-COVID (2020), the tourism industry was the largest exporter with $17.6 billion NZD; following with $17.1 billion export value was the dairy industry. Following the impact of COVID, the tourism industry earnings dropped significantly to $1.9 billion in 2021, yet the dairy industry earnings continued to thrive and currently dominated the export earning in NZ [3], maintaining the forecasted CAGR of 6.5% annually [1].
Challenges facing the dairy sector
Post COVID-19
Although during COVID, the export value of NZ dairy products had continued to increase, the current recession state post COVID will likely embark on . Research suggests the positive correlation between disposable household income and milk consumption [6], hence inflation and unemployment will likely impact demand for milk and milk-products.
Milk substitutes (plant and synthetic protein liquids)
An international increase in the demand for non-dairy milk (e.g. oat, soy, almond milk) due to shifts in eating habits (e.g. vegan), environmental concerns, animal rights etc are likely to see larger impacts of the dairy industry; 8.76% CAGR of the milk substitute market is expected as of 2023 - 2028 [11].
As of now, Fonterra has not yet diversified into plant-based alternatives and markets the higher nutritional value of dairy milk compared. However, in 2022, Fonterra had begun to invest in non-dairy products, including a start up that develops non-dairy via precision fermentation methods [7]; a method that involves GMO yeast to brew components of milk, and is prospected to taste alike to regular dairy milk [8].
Environmental enforcements
Freshwater National Policy Statement, 2020 and the National Environmental Standards for Freshwater released to local councils by the NZ government puts in place criterias for farm plans and restricts high-risk farm practices such as controlling nitrogen emissions. Further, self-enforcing voluntary agreements between farmers and the government put measures on farming practices such as fencing off dairy cattle from waterways to preserve fresh waterways [1].
Pressure will also be applied to companies in the dairy sector as NZ aims for carbon neutral by 2050. Fonterra is NZ’s second largest coal user, with roughly a third of Fonterra’s manufacturing sites use coal as the main energy source. Sites in the South Island of NZ having no access to natural gas, making the transition to cleaner fuel options difficult [1].
Fonterra claims in its 2030 prospect to invest $1 billion NZD to improving water treatment and efficiency, and reduce carbon emissions to align pace with NZ’s 2050 carbon neutral goal.
Competition
- Synlait
- The a2 milk company (a2M)
- Open Country Dairy
Risk Assessment
Dairy Industry Restructing Act (DIRA)
The initial implementation of DIRA in 2001 lifted controls on exporting NZ dairy, effectively opening up competition of NZ dairy internationally. However, the near monopsony state of Fonterra Co-op with farmers decrease competition domestically. DIRA sets out requirements, specifically section 4(f) of the Act specifically states to regulate Fonterra to push overall contestability and efficiency of NZ dairy.
As of July 2020, amendments of the act mostly relaxed certain regulation on Fonterra. However, as set out in the amended DIRA, Fonterra is required to supply milk to Goodman Fielder (main milk distribution competitor in NZ) that can support half of the total supply of the NZ domestic dairy market. These amendments are reviewed every 4 to 6 years and could be changed accordingly.