To deal with the immediate challenges of depressed milk prices and China’s growth slowing, Fonterra’s managing director of people, culture and strategy Maury Leyland said the global dairy giant was looking to strengthen its presence in Asia and look to produce higher margin products.
Ms Leyland told the Global Food Forum that China’s Fonterra operations aimed to be producing one billion litres of top quality fresh milk every year by 2018.
She said Fonterra had been able to leverage off its reputation in China as a clean and green producer of high quality, safe dairy.
China importing about a quarter of Fonterra’s exports and there is a growing demand for milk products, including infant formula, from the country's booming middle class.
“We want to be very trusted in the Chinese market,” she said.
“And we’re increasingly working to supply more than milk.”
In recent months, Fonterra finalised its acquisition near 20 per cent stake in China's Beingmate Baby and Child Food Company, at a reported cost of $553 million.
She said Chinese milk consumption would continue to grow quicker than its domestic production which had been hindered by issues including foot and mouth disease pressure (“although not in a straight line”), and that taste for the healthy, natural product was being encouraged by the government.
Having such a global empire of dairy production and processing has required Fonterra to have a very strict management controls for food safety, including on farms and getting inputs from vets and animal nutritionists
“We’re bringing hundreds of people on-board to be part of Fonterra,” Ms Leyland said.
That included training people and instilling a sense of pride in its workers.
She said Fonterra was now focused on understanding consumer demands, instead of just looking at growing milk supply.
“We’ve got to play to our advantages, so in Australia higher we will focus on producing (higher) value products.”
She said other developing markets, including in Africa and South American countries including Brazil provided an exciting challenge for dairy companies.
Accessing adequate capital to increase dairy production and productivity was an on-going challenge, and she said she would watch with interest Murray Goulburn’s (MG) board’s proposed capital restructure.
She said Fonterra’s capital restructure implemented in 2012 that allowed outside investors was needed and different investors brought different perspectives that strengthened the business.
“At the heart of it, our (farmer and outside investor) interests are pretty closely aligned, of course we can have debates short and medium term.
“We need to ensure the milk price achieved is still profitable and yes, we’re having a tough year, but shareholders still expect good return on capital.”
She said Fonterra’s longer-term strategy was to prioritise higher margin products and supply chain efficiency, and this would require new skill sets including marketing.
