Is Fonterra's 'star' waning in the west?

Fonterra says it's holding the line in Victoria and Tasmania


Australian Dairyfarmer News
LEAVING FONTERRA: Irrewarra, Vic, dairy farmer John Martin, with his wife Jodie and daughter Rachael, is leaving dairy processor Fonterra after the family has been supplying the dairy giant, and its predecessors, for nearly 100 years. Photo by Rob Gunstone.

LEAVING FONTERRA: Irrewarra, Vic, dairy farmer John Martin, with his wife Jodie and daughter Rachael, is leaving dairy processor Fonterra after the family has been supplying the dairy giant, and its predecessors, for nearly 100 years. Photo by Rob Gunstone.

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Fonterra's MD admits rebuilding trust is a long term project.

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Western Victorian dairy farmers who can trace their heritage back a century to the formation of the iconic Western Star butter say they still don't trust the NZ processing giant.

Those leaving the company include former Bonlac Supply Company director Mark Billing, one of several multi-generational regional dairy farmers providing milk to Fonterra and its predecessors.

Mr Billing was scathing in his criticism of Fonterra.

"Management in Melbourne struggles to understand what goes on at the farm gate," Mr Billing said.

"The big decisions are being made in NZ, that's where Fonterra Australia is hamstrung."

He said he bore no ill-will towards Fonterra - "good luck to them" - but still didn't trust the company.

"Yes, very much so, [the mistrust is] probably as real today as it was three years ago," Mr Billing said.

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In May 2016, Fonterra announced it was revising down its payments to farmers from $5.75 to $5.00 a kilogram of milk solids.

It offered farmers the option of either re-paying the money by July 1, or taking out a loan at an interest rate of 3.95 per cent, payable from 2018.

The Fonterra Australia Support Loans are due to expire on June 30, next year.

"I think the frustration, for me, is that Fonterra hasn't seemed to have changed a great deal from when they dropped the milk price," Mr Billing said.

"They are still having major issues in rebuilding trust.

"Essentially, we are just trying to pick our way through, we are still recovering from the clawback."

Mr Billing said he used to believe in Fonterra's overall global strategy.

"But the disaster with Beingmate has put a huge strain on Fonterra's balance sheet," he said.

By December last year, Beingmate, a listed Chinese dairy giant, had lost more than two-thirds of its market value in three years.

Fonterra decided to unwind its Australian dairy joint venture with troubled Chinese infant formula group, which announced it was selling its 51 per cent stake in the Darnum joint venture milk powder factory.

Fonterra Australia managing director Rene Dedoncker said the company had taken back full control of Darnum earlier this year.

"Despite the roller coaster ride with Beingmate globally, I have had the independence to bring full ownership back into Fonterra Australia," Mr Dedoncker said.

"When a partnership like that doesn't work, we act."

Mr Billing said Fonterra appeared to "hide behind the spin" when dealing with producers, allowing rumour and innuendo to flourish.

"That showed me Fonterra don't really get what is going on in Australia and the market they are operating in," he said.

He said he, and many other suppliers in the south-west, had switched to Australian Consolidated Milk.

"I like ACM's business model, it's pretty simple," Mr Billing said.

"I went to the supplier meetings and was fairly impressed."

Western Star

Fourth-generation Irrewarra, Vic, dairy farmer, John Martin, said he had switched from Fonterra, as he was seeking higher prices, security and trust.

"Had they not done what they had done, they would have been a powerhouse in the Australian industry today," Mr Martin said.

The Martin family also recently switched to ACM.

Mr Martin said he was the fourth generation of dairy farmers at Irrewarra, which started with the Colac Dairy Company, in the 1920's.

"We've had our ups and downs with Fonterra," Mr Martin said.

"We could have left a number of times, particularly three years ago, when they followed Murray Goulburn in the clawback.

"Even when Bonlac was starting to go bad, we could have left and gone to MG."

He said his grandfather, Herbert Martin, was instrumental in setting up Western Star butter when several small manufacturers came together to market a common product.

"We had good times with Fonterra, but this time it's price - business is business," he said.

"But trust is a big thing in this: I don't forgive them for the clawback."

Read more: Fonterra clarifies price announcement

Mr Martin said ACM had come out with a minimum milk price.

"Fonterra always muck around with forecast pricing, they are always following, never leading," he said.

"They always waited to see what Murray Goulburn did before they followed.

"I hope that, for the future of dairying in Victoria and Australia, Fonterra doesn't eventually divest, or sell up.

"We need all the competitors we can get but I and my family don't want to be part of a downward spiral I can see for Fonterra in the future."

He said he knew of many farmers in the Colac area who were switching processors.

"Never before have I seen a run of Fonterra suppliers leaving the processor as I have in the past couple of days," he said.

Trust deficit

Noel Roache of Alkira Pastoral in Woolsthorpe said he left Fonterra in November 2016.

He agreed that Fonterra still had a long way to go to regain the trust of farmers.

"On the one hand, you can't work hard to build trust and keep your profile up and on the other hand do what you did," Mr Roache said.

"Saputo is doing such a good job now of looking after suppliers," he said.

"It's got some good structures in there that help suppliers in tough years.

"They've taken a lot of suppliers off Fonterra."

He said it was hard to build trust on a small supplier base.

"You need a few people to say 'oh yeah, they helped me out' - people like word of mouth," Mr Roache said.

"If you haven't got suppliers and word of mouth, you don't get trust back easily."

Rebuilding trust

Mr Dedoncker said he wasn't surprised farmers still had issues with trust.

"There are multiple steps to get back trust, I think the first one is to make commitments we can honor and slowly build consistency," Mr Dedoncker said.

"Consistency, over time, turns to confidence."

He said he was very aware concerns about the claw-back still weighed heavily on the minds of many farmers.

"I know that goes deep.

"I'm under no illusion that this is a multi-year process and my job is to stick to a path where we can deliver commitments, where we can eyeball farmers, to let them know when we can't do something but to deliver the commitments we do make.

"I am very, very clear, this will take years."

He said Fonterra's internal surveys had measured a slow recovery in confidence, since 2016.

Mr Dedoncker said Fonterra was maintaining an 18-19 per cent share of the Victorian and Tasmanian milk pool, which was stable.

He said that was around 1.6 billion litres in the two states.

"There is no doubt we have had some farmers who have chosen to leave but we have also had farmers that have chosen to join," Mr Dedoncker said.

"I think we will know more, over the next few weeks, as farmers continue to make decisions.

"We are not denying there is movement but it's remaining balanced."

Mr Dedoncker said the company had the ability to be competitive in the market.

"I've had 12 different sessions with farm suppliers and agribankers, in all regions," he said.

He said he had recently met with about 200 farmers in the south-west who asked many questions about consistency and performance.

Mr Dedoncker said the company's financial fundamentals were extremely sound.

"We have a triple-A credit rating, by a number of global institutions," he said.

"Some of the investments, like Beingmate, and the performance of some of the parts of the business have just not been up to expectations.

"That does need a shakeup.

"And that requires change - and with that change comes a little bit of uncertainty."

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