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Fonterra Co-Operative Group Limited
Fonterra logo.png
Type Co-operative (NZX: FCGHA)
Founded 2001
Headquarters Auckland, New Zealand
Key people Sir Henry van der Heyden, Chairman
Andrew Ferrier, CEO
Industry Manufacturing
Retail
Products Milk
Butter
Cheese
Ice-Cream
Revenue NZD $16 Billion 2009
Employees 15,600 approx
Subsidiaries Anchor
Anmum
Anlene
Mainland Cheese
Tip Top
Website Official Website

Fonterra is New Zealand’s largest multinational company with revenue exceeding NZD $16 billion [1] It is a co-operative that is owned by over 10,500 farmers [1]. The company controls around 30% of the world's dairy exports[2]

Contents

History

Te Rapa dairy factory north of Hamilton.

Fonterra was established in October 2001 through a merger of the two largest New Zealand dairy cooperatives and the New Zealand Dairy Board. The purpose of the merger was to create a single company to manage the supply chain for a significant proportion of the New Zealand dairy industry.

The company has an annual turnover of around US$8 billion. Its core business consists of exporting dairy products under the NZMP brand (95% of its New Zealand production is exported). It also operates a fast-moving consumer goods business for dairy products, Fonterra Brands. Fonterra has a number of subsidiaries and joint-venture companies operating in markets around the world.

Fonterra Riverina Fresh in Wagga Wagga, New South Wales, Australia

In 2005 the company purchased a large factory in Dennington, Victoria, Australia from Nestlé, after they moved out of the collection of milk from farmers and the manufacture of powdered milk in Australia.[3] Also in 2005 the company made moves towards purchasing Australian companies Dairy Farmers and National Foods. It also converted its 50 per cent stake in Victorian dairy producer Bonlac to full ownership. At this time $1 billion of Fonterra's revenue was from Australian sales, which was 14 per cent of the dairy products it sells around the world.[4]

In November 2007 after a lengthy capital review the company's board recommended to farmers that its assets, liabilities and operations be split from the co-operative and listed on the New Zealand Stock Exchange. Under the plan, which had been rumoured for months, the co-operative would retain two-thirds of the company, 15% would be given to farmers (which they could sell or retain), and 20% traded freely. Doug Woolerton, a New Zealand First MP, branded the plan "a disaster for farmers and for our economy as a whole", but other commentators said it would breathe life into the sector and the New Zealand economy as a whole. The announcement started a two-year review. If the board's plans are adopted, Fonterra is expected to be New Zealand's largest listed company.

Fonterra have recently suggested that they will move their US headquarters from Harrisburg, Pennsylvania to Chicago, Illinois adjacent to the Chicago O'Hare International Airport for close proximity to a wide range of international flights, proximity to public transportation, their dairy suppliers and clients (Kraft Foods Inc. and General Mills Inc.) in the Midwest.[5]

In June 2008 the company acquired the yoghurt and dairy dessert business of Nestlé Australia.[3]

Proposed changes to capital structure

In November 2007 the board of directors announced[6] a two-year consultation programme regarding their preferred capital re-structuring option: putting the business operations in a separate listed company, with the co-operative maintaining a controlling interest. The aim was to give more access to funds for global growth.

Praised by some[7][8] as a bold move which would allow better access to outside capital, the proposals encountered significant opposition from both farmer shareholders and the government (who would be required to pass enabling legislation). Despite including a range of safeguards, farmers were clearly concerned at the risk of losing control; in what was sometimes described as a demutualization.

The board responded in 2008 with a request for consultation and discussion.[9][10]

Brands

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Key brands

Brands in New Zealand

  • Anchor
  • Anchor Calciyum
  • Anlene
  • Tip Top and Kapiti (icecream)
  • Country Goodness
  • Yoghurt-2-Go, De Winkel, Fresh and Fruity, Anchor Symbio (formerly Metchnikoff), and Slimmers Choice (yoghurt)
  • Primo (flavoured milk)
  • eon, Zing, Whole (pure/flavoured water)
  • Mainland, Kapiti, Ferndale and Galaxyg, Perfect Italiano (cheese)
  • Fernleaf
  • Whole

Brands in Australia

  • Brownes Calcium Plus
  • Bega Cheese[11]
  • Peters and Brownes[12]
  • Riverina Fresh [13]

Business units and subsidiaries

  • Fonterra Brands

Consumer goods business

  • Fonterra Ingredients
  • Fonterra Global Trade

Dairy ingredients supplier to the globally traded market

  • Fonterra Foodservices

Hospitality supplies

  • Fonterra Group Manufacturing

Fonterra's food processing and manufacturing operations

  • Fonterra Milk Supply

Collect and Distribute milk from farms

  • Shared Services

Finance, Communications, M&D, Human Resources, Strategy and Information Services.

  • RD1 - a wholly owned rural retail supplier. RD1 was formed at the end of 2001 through the merger of RD1.com and the Town & Country Agri-centres, Fonterra's two rural supply companies. With revenue exceeding $440 million, RD1 is New Zealand's largest retailer of agricultural supplies to dairy farmers. It operates 51 stores throughout New Zealand.

Environmental performance

Initiatives

Fonterra has a number of initiatives relating to environmental protection. Its environmental policy states that "Fonterra shall demonstrate a global commitment to protecting the environment. Sustainability, good environmental practice and environmental improvement are cornerstones of Fonterra’s environmental commitment."[14]

In 2003 Fonterra was a signatory to the Dairying and Clean Streams Accord, which sets a timeframe for the improvement of water quality on farms. In February 2008 the inaugural Fonterra Environmentalist of the Year was announced at the Beehive.[15]

Awards

In 2007 Fonterra won the following in the Energy Efficiency and Conservation Authority, Energywise Awards:

Transpower Project Innovation Award Winner: Fonterra Co-operative Group - Whareroa heat recovery loop Fonterra have a poor overall environmental track record and are largely responsible for the degradation in quality of New Zealand's rivers, lakes and streams through their intensive dairy operations; many of which are now unsafe for swimming and even unsuitable for stock to drink from. Fonterra have been slow to make real and meaningful environmental initiatives.

Contact Energy Management Award Winner: Fonterra Co-operative Group - Energy efficient project management team

Fonterra is leading the way with the development of biofuels in New Zealand with waste Whey being used to make Gull Force 10. This utilises a waste source that would otherwise be disposed of by dischargeing onto land or into the sea, so it does not lead to less food being created or rainforest destruction like many other biofuels.

Waste water

In 2006 Fonterra was asked to 'clean up its act', instead of obtaining consent to discharge 8,500 cubic metres per day of wastewater into the Manawatu River.[16]

Greenpeace protest deforestation allegations

Fonterra was the subject of a Greenpeace protest off the Port of Tauranga on September 16, 2009, in which 14 Greenpeace activists chained themselves to a ship, protesting shipments to New Zealand of palm kernel animal feed, destined for Fonterra dairy farms. Palm kernel imports went from 0.4 tonnes in 1999 to 455,000 tonnes in 2007 and then to 1.1 million tonnes in 2008[17], one quarter of the world's palm-based animal feed [18]. Deforestation for the production of palm products is a significant cause of climate change, and loss of bio-diversity.[19]

Greenpeace campaign director Chris Harris said only 4 per cent of palm oil came from sustainable sites [20]. Greenpeace stated that forests were being cleared for the planting of the trees that produce palm oil.

Greenpeace claims that the resulting deforestation and the draining of peatlands is contributing to rising carbon emissions and the destruction of endangered animal habitats [21] but “Not one millimetre of forest is being cleared just to feed dairy cows,” said John Hartnell, Federated Farmers biosecurity spokesperson.

Brown coal use protest

Much to the Edendale fonterra site staff's amusement activists protested at dawn on November 17, 2009 against Fonterra's use of brown coal (lignite) at their New Vale mine near Gore, New Zealand.[22] [23]

Eight of Fonterra's milk processing plants burn approximately 450,000 tonnes of brown coal per year. These emissions are exempt from an emissions trading scheme until 2015 and agricultural greenhouse gas emitters in New Zealand currently receive a $1.1 billion subsidy from taxpayers.

Sanlu milk scandal

In September 2008, one of the biggest dairy companies in China, the Shijiazhuang Sanlu Group, 43% owned by Fonterra,[24] recalled more than 10,000 tonnes of infant milk powder after a food safety scandal involving the criminal melamine contamination of its raw milk supply. Court papers showed that the company first began receiving complaints of children becoming sick after drinking its milk in December 2007 but only stopped production when Fonterra blew the whistle in September 2008. [25] After the initial focus on Sanlu, China’s quality watchdog said that inspectors had also found the chemical melamine in baby milk powder produced by 22 companies nationwide. [26] An estimated 300,000 Chinese babies were affected and six died after developing kidney problems as a result of drinking milk powder formula containing melamine.[27]


Fonterra became aware of problems on 2 August 2008. The company notified the New Zealand government on 5 September after failing to secure a public recall. Three days later, Prime Minister, Helen Clark had Beijing officials alerted directly.[28][29] Clark said: "I think the first inclination was to try and put a towel over it and deal with it without an official recall."[30]

On 21 September 2008, an editorial in the New Zealand Herald questioned the "moral courage and leadership" of Fonterra chief executive Andrew Ferrier. Citing Fonterra's number one corporate value, the journal question why it took nearly a month after it had become aware of the contamination before it notified the government. It said that Fonterra's press release had been "minutely scrutinised by lawyers and spin doctors, and that the company was far less interested in 'moral courage and leadership' than it was in preserving its own position."[31] The next day, Helen Clark, the Prime Minister agreed that the company had been too slow to speak out: "...no doubt their shareholders will want to hold the company accountable for that.[32] Ferrier was also condemned by Business Day for his "silent hand-wringing", when he should have immediately blown the whistle.[33] Ferrier denied that Fonterra had any knowledge of revelations that Sanlu lied for eight months to hide complaints about its melamine-contaminated baby formula. Chief executive Andrew Ferrier said, "Clearly there are very painful lessons here for Fonterra," "If one partner did not tell the truth to the other ,you have a critical breakdown in that relationship". He added later that: "Fonterra is gun shy over the whole thing." He claimed that people deeper down in their organisation in China could have been "fooling us".[34] However, Access Asia, a Shanghai-based consumer consultancy, said Fonterra was a classic example of western executives in China "believ[ing] advice in business books that they must avoid making their local partners 'lose face' at all costs." It suggested that Fonterra paid a heavy price in write-offs, a wrecked business and public condemnation.[35]

On 24/9/2008, Mr van der Heyden[36], Chairman of the board, during a press conference, said the scale of the tragedy has been "truly shocking".
"As a direct consequence of the criminal contamination of milk in China, Fonterra has recognised an impairment charge of $139 million against the carrying value of its investment in SanLu.""Following this impairment charge, Fonterra's best estimate at this point of time, of the book value of its investment in Sanlu is approximately $62 million." which is 69 per cent below its previous carrying value.
Mr Ferrier said the Sanlu brand cannot be saved but the company assets perhaps could.

On 17 September 2008 Fran O'Sullivan[37] said: "Fonterra is setting up a 3000-head dairy farm in China itself to provide quality product and demonstrate best practice."

On 20 September 2008 Fran O'Sullivan:[38]"Clark (former NZ Prime Minister) should be ordering an official inquiry into why it took a full month from the time our diplomatic staff in Beijing were first informed about the product quality issue to when the whistle was blown."

On 10 October 2008 chief executive Andrew Ferrier announced on Beijing Fonterra will "donate NZ$8.4 million to the Soong Ching Ling Foundation over five years for a co-operative charity project to provide medical care and advice to pregnant women and the mothers of infants in rural communities." Andrew Ferrier said Fonterra is "shocked by the degree of tragedy" and the donated fund is set up to "help over the long-term in infants and maternal mother health."
Andrew Ferrier said Chinese consumers have lost confidence in Sanlu, not Fonterra, and Fonterra is working towards rebuilding a safe supply chain of dairy products.[39]

See also

References

  1. ^ a b "Fonterra Annual Report 2009" (PDF). 2009-09-22. http://www.fonterra.com/wps/wcm/connect/9704ee804009ef6aa916ad21d66da0e1/2009+Annual+Report_FINAL.pdf?MOD=AJPERES. Retrieved 2009-11-29.  
  2. ^ NZPA, NZX launches milkpowder futures, 2009-06-04, The National Business Review, retrieved 2009-09-22.
  3. ^ a b "Fonterra buy Nestle's yoghurt and dairy business". The West Australian. www.thewest.com.au. 24 June 2008. http://www.thewest.com.au/default.aspx?MenuID=159&ContentID=80833. Retrieved 2008-10-19.  
  4. ^ Jeff Turnbull (November 1, 2005). "Fonterra ogles Dairy Farmers' brands". The Sydney Morning Herald.. www.smh.com.au. http://www.smh.com.au/news/business/fonterra-ogles-dairy-farmers-brands/2005/10/31/1130720482035.html. Retrieved 2008-10-19.  
  5. ^ Eddie Baeb, 'Northwest suburbs get 2 big leases', Chicago Real Estate Daily, 2008-03-26, accessed 2008-04-01.
  6. ^ Fonterra announces start of Capital Structure consultation programme, Media release, Fonterra website, November 2007.
  7. ^ 'Fonterra listing a win-win-win situation', Brian Gaynor, Milford Asset Management website, retrieved 11 June 2008.
  8. ^ "A bold step forward for Fonterra". http://www.nzherald.co.nz/section/1/story.cfm?c_id=1&objectid=10476604. Retrieved 2008-05-19. "The global ambitions enunciated at its birth have not been translated into action. That may, however, be about to change if dairy farmers embrace the bold path outlined by Fonterra management"  
  9. ^ "Unco-operative: Taking a stand". http://www.stuff.co.nz/stuff/4419237a3600.html. Retrieved 2008-05-18. "Mr van der Heyden said the board spent two years looking at a large number of options for capital restructure. And it remains firm in its view, that the plan put to farmers in November, is the best one."  
  10. ^ "Co-operative Issues – Demutualisation". http://www.ica.coop/coop/mutuality2.html. Retrieved 2008-05-14. "The Fonterra board originally proposed a member vote in May 2008. This has now been set aside for now as not essential and because the Fonterra board says there a need for more consultation and discussion due to misunderstandings and some misinformation....Under the proposal a second company would be created with all the assets, liabilities and operations of the current co-operative shifting to this entity. Ultimately shares in the new company would be listed."  
  11. ^ "Bonlac bid just start for Fonterra". The Sydney Morning Herald. http://www.smh.com.au/news/Business/Bonlac-bid-just-start-for-Fonterra/2005/06/07/1118123838263.html. Retrieved 2008-04-05.  
  12. ^ "Farmers outraged at new milk price offer". Australian Broadcasting Corporation. http://www.abc.net.au/rural/wa/content/2006/s1602974.htm. Retrieved 2008-04-05.  
  13. ^ "Name change for Murrumbidgee Dairy Products". Australian Broadcasting Corporation. http://www.abc.net.au/news/newsitems/200610/s1773121.htm. Retrieved 2008-04-05.  
  14. ^ "Fonterra Environmental Group Policy". Fonterra. 2006-01-19. http://www.fonterra.com/wps/wcm/connect/48cfe400453f0777a388ff9a8f155673/Environmental+Group+Policy+19+Jan+06.pdf?MOD=AJPERES. Retrieved 2008-03-13.  
  15. ^ "Fonterra backs green award". Rural News. 2008-03-11. http://www.ruralnews.co.nz/Default.asp?task=article&subtask=show&item=15024&pageno=1. Retrieved 2008-03-13.  
  16. ^ "Forest & Bird calls on Fonterra to clean up its act on the Manawatu River". Royal Forest and Bird Protection Society of New Zealand. 2006-08-09. http://scoop.co.nz/stories/PO0608/S00087.htm. Retrieved 2008-03-13.  
  17. ^ Activists chain themselves to ship, TV One News, 2009-09-16, TVNZ Ltd website, retrieved 2009-09-21.(Archived by WebCite)
  18. ^ Fonterra facing critic from Greenpeace over palm oil feed, Tangaroa Snell, 2009-08-23, Top News website, retrieved 2009-09-21.
  19. ^ Fonterra’s role in rainforest destruction exposed, Greenpeace Aotearoa New Zealand Press Release, 2009-08-22, retrieved 2009-09-30. Archived at WebCite.
  20. ^ Greenpeace protest won't shift Fonterra or PM, NZPA, 2009-09-17, The Dominion-Post, retrieved 2009-09-21.
  21. ^ Greenpeace accuses Fonterra of contributing to deforestation, By Guy Montague-Jones, http://www.ap-foodtechnology.com, 2009-08-25, retrieved 2009-09-21.
  22. ^ "Climate activists shut down coal mine in protest against Fonterra". Fairfax Digital: Farm Online, Stock & Land. 2009-11-23. http://sl.farmonline.com.au/news/state/dairy/general/climate-activists-shut-down-coal-mine-in-protest-against-fonterra/1685027.aspx?storypage=0. Retrieved 2009-11-24.  
  23. ^ "Greenpeace protest at Gore's New Vale mine". Otago Daily Times (Online). 2009-11-17. http://www.odt.co.nz/the-regions/southland/82319/greenpeace-protest-gore039s-new-vale-mine. Retrieved 2009-11-24.  
  24. ^ "Fonterra And San Lu Reach Joint Venture Agreement". Scoop. 2005-12-02. http://www.scoop.co.nz/stories/BU0512/S00032.htm. Retrieved 2008-09-15.  
  25. ^ "Little comfort in milk scandal verdicts". BBC News. 22 January 2009. http://news.bbc.co.uk/2/hi/7845545.stm.  
  26. ^ "China seizes 22 companies with contaminated baby milk powder". Xinhua News Agency. 2008-09-17. http://news.xinhuanet.com/english/2008-09/17/content_10046949.htm. Retrieved 2009-06-13.  
  27. ^ "China seeks food safety.". Rural News. 2009-04-21.  
  28. ^ Klaudia Lee, "NZ alerted China to tainted milk, PM says", Page A1, South China Morning Post (16 September 2008)
  29. ^ Toxic milk toll rockets in China, BBC News (15 September 2008)
  30. ^ "Chinese milk powder contaminated with melamine sickens 1,253 babies". London: The Times. 15 September 2008. http://www.timesonline.co.uk/tol/news/world/asia/article4758549.ece. Retrieved 2008-09-15.  
  31. ^ "Editorial: Fonterra poison milk scandal a disaster waiting to happen". New Zealand Herald. 16 September 2008. http://www.nzherald.co.nz/food/news/article.cfm?c_id=206&objectid=10533356. Retrieved 2008-09-27.  
  32. ^ "Fonterra slow to speak on milk scandal". New Zealand Herald. 2008-09-21. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10533487&ref=rss. Retrieved 2008-09-24.  
  33. ^ John Minto (30 September 2008). "Fonterra has failed us all". Business Day. http://www.businessday.co.nz/industries/agribusiness/4710249. Retrieved 2008-09-27.  
  34. ^ "Fonterra had not heard of milk revelations - Ferrier". New Zealand Herald. 24 September 2008. http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10533828. Retrieved 2008-09-27.  
  35. ^ Richard Spencer & Peter Foster (24 September 2008). "China milk scandal threatens giant dairy firm". The Telegraph. http://www.telegraph.co.uk/news/worldnews/asia/china/3073998/China-milk-scandal-threatens-giant-dairy-firm.html.  
  36. ^ "Fonterra takes 69pc Sanlu writedown". http://www.businessday.co.nz/industries/4704082. Retrieved 2008-09-24.  
  37. ^ "Fran O'Sullivan: Soul-searching for Fonterra". New Zealand Herald. 17 September 2008. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10532551. Retrieved 2008-09-27.  
  38. ^ "Fran O'Sullivan: Clark should order inquiry into poisoned-milk crisis". New Zealand Herald. 20 September 2008. http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10533146. Retrieved 2008-09-30.  
  39. ^ "Fonterra puts up $8.4m to provide care in China". The New Zealand Herald. 11 October 2008. http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10536936. Retrieved 2008-11-09.  

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