The average across the entire group is $1.00. Its figures show while Fonterra collects the second largest amount of milk (and is the world’s largest milk exporter), its estimated turnover per kg of milk solids is only US60c.īy comparison, Danone is the 11th largest milk processor, but it turns over US$2.40 for every kg to make it the best performer. This ranked Fonterra 17th out of the 20 companies in terms of value creation. The rate of return on that business, in turn, is barely higher than that on the bulk commodity business.Ī much cited figure is the 2018 value report published by the International Farm Comparison Network (IFCN). So this was almost $20B of revenue from a starting point of ‘nothing’.Īctual revenue now, 17/18 years on, is about $20 billion (including a structural improvement in world dairy prices) and relatively little is from those vaunted specialised products. In revenue terms, the promise had beenįrom a starting point of only $5B, they outlined a six-fold increase in revenues in only 10 years to $30B.Ĭritically, just under two-thirds of the $30B would come from what is euphemistically known as ‘value add’: specialised ingredients and biotech-heavy products. His starting point is with the misplaced belief among senior political figures 20 years ago that by allowing the creation of Fonterra – using legislation to override the Commerce Commission – the door would be opened to the evolution – in pretty short order – of something equivalent to New Zealand’s Nokia. And Peter was kind enough to send me a copy of his presentation, with permission to quote from it. The bulk of Peter’s diagnosis has already appeared in the mainstream media, in a substantial Herald op-ed a few weeks ago and then in a Stuff article yesterday. The style perhaps won’t appeal to everyone, but the substance of his talk poses some very serious questions and challenges. He has a great stock of one-liners, and listening to him reminds me of listening to Gareth Morgan when, whatever value one got from purchasing his firm’s economic forecasts, the bonus was the entertainment value of his presentation. Peter is a former public servant – we did some work together, the last time Fonterra risks were in focus, a decade ago – who now operates as a consultant to various participants in the dairy industry (not Fonterra).
That was the title of Wellington economist Peter Fraser’s talk at Victoria University last Friday lunchtime on why Fonterra has failed (it is apparently also a term in use in various bits of popular culture, all of which had passed me by until a few moments ago – and a Google search).
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