Copyright farmersweekly
Reading Time: 3 minutes By Colin Glass. Glass is CEO of Dairy Holdings, Fonterra’s largest milk supplier shareholder. As New Zealand dairy farmers vote on whether to divest a business for $4.22 billion to Lactalis, it is an opportune time to be more forward looking. To dream about what an internationally competitive ingredients market demands and requires. For Fonterra to be truly enduring, the strategic focus must now be innovative, long term and intergenerational. New Zealand agriculture has always been at its best when it has had a long-term focus. This requires farm businesses to always be profitable and attractive career propositions for staff and the next generation of owners. So, as Fonterra receives the proceeds from the sale to Lactalis we should not be in a hurry to pay all the money back to shareholders. Fonterra needs to invest at pace in new technologies and plants to grow its foodservice and value-add ingredients businesses. Now is the time for Fonterra to step up to the challenge and invest wisely to future-proof the co-operative. The co-op has earmarked $700 million from the sale of the consumer business, which means Fonterra can invest in the parts of its business that have consistently performed better and are producing the highest return on capital. But what could really be achieved if this investment was stepped up? We also know that the boundary between the processor and the farm gate is becoming increasingly blurred. With 90% of Fonterra’s Scope 3 emissions being generated on farm, Fonterra will in future be more focused on how we produce our milk. Farm emission profiles will need to improve as this is simply good for business. What are our main farming challenges that need to be addressed? In my view they are: • The most efficient cow at converting feed to milk. We know New Zealand’s pasture system and cross-bred herd has made us world leading. However, our rates of genetic gain of the dairy herd, declining herd fertility, and increasing cow liveweight means our international competitive advantage is being eroded. • Pasture harvested has been flat for the past two decades, and increases in production have come largely from increased supplementary feeding. The genetic advancement of our pastures is light years behind the productivity gains achieved from the maize and soy-based diets of our northern hemisphere competitors. Genetic technologies with a strong focus on farm systems to capture the resulting productivity gains are more important today than ever. • Staff productivity has largely been unchanged since the invention of the rotary dairy shed. In New Zealand we have a staffing and productivity challenge, combined with declining and ageing population in the regions. We must invest in technologies that will increase our productivity while reducing out costs. These challenges should not be feared. Rather, they are opportunities that with investment can improve our international competitiveness. Our reinvigorated future looking co-operative also has exciting opportunities in the value-add, ingredients market. Our historical investment in UHT creams and mozzarella cheese processes are just some of the innovations in ingredients that have delivered strong returns. Now is the time to double-down on these innovations and investments. Over the past decades we have witnessed unprecedented consolidation and aggregation at both a farm and international dairy processor level. Scale has been our friend. Almost no international dairy processors have been able to shrink to success. Fonterra, post the Lactalis transaction, will be a new and different organisation. Now is the time for us to reconsider our willingness to invest in our children’s future. The Lactalis transaction is the right thing to do. But the future success of Fonterra will not be judged by this transaction alone, rather it will be judged by the investment decisions that follow. We need to encourage our board to have the conviction to take a joint approach at both farm and processor level to really strengthen our future international competitive advantage. Yes to Lactalis, but invest in our future.
