NEW ZEALAND – New Zealand’s dairy giant, Fonterra, has unveiled a strategic plan aimed at slashing approximately US$598 million in costs over the next seven years, responding to a sharp fall in global dairy prices.
Fonterra’s Chief Executive Officer, Miles Hurrell, hinted at potential job cuts, noting that the company’s focus on efficiencies will have implications for staff numbers.
However, precise details regarding the extent of workforce reductions among Fonterra’s 20,000 employees remain undisclosed.
Meanwhile, these adjustments have intensified the challenges faced by the company’s farmers, according to Hurrell.
With approximately 9,000 farmer-shareholders, Fonterra stands as one of the world’s largest dairy exporters, producing a staggering 16 billion liters of milk annually and catering to more than 140 countries.
Last year, dairy emerged as New Zealand’s leading export commodity, contributing 28 percent to the nation’s total exports, amounting to an impressive $12.3 billion, according to Stats NZ.
Unfortunately, the dairy industry recently experienced a significant setback, with dairy prices plummeting last month, driven by a startling 10.9 percent decline in whole milk powder costs.
In response to these market fluctuations, Fonterra had to revise its milk pricing forecast downward on two separate occasions in recent weeks.
One of the primary factors behind the price decline has been a decrease in demand for imported whole milk powder from China, one of Fonterra’s three key regional markets.
Hurrell elaborated on this trend, stating that strong domestic milk supply growth in China has been propelled by high raw milk prices over the past few years.
More recently, China’s extended Covid-19 lockdown has also reduced consumer demand for fresh milk products, and this demand has not yet recovered to the previously forecast levels.
However, there are promising signs that China’s domestic milk production is beginning to stabilize, which Hurrell believed could lead to a resurgence in demand for New Zealand dairy products by the calendar year 2024.
This coincided with the anticipated removal of remaining tariffs on New Zealand dairy products in January 2024, thanks to the NZ-China Free Trade Agreement.
Despite Fonterra’s robust financial standing, Hurrell issued a cautionary note, emphasizing that achieving their long-term targets necessitates rigorous allocation of milk investment.
“We also know this means reducing our costs to assist us in hitting our short-term and long-term targets,” he said.
Fonterra’s cost-cutting strategy revolves around streamlining their operations through enhanced operational efficiencies, reducing cash expenditures across the organization, and embracing digital processes.
As they embark on this transformative journey, Fonterra hopes to navigate the challenging landscape of the dairy market and emerge as a leaner, more resilient industry leader in the years to come.
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