Fonterra's Strategies

Fonterra Strategy

As espoused on their website:Fonterra's strategy

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Fonterra's strategy supports our vision to lead in dairy.

All over the world, people are paying more attention to their diet as part of their overall good health. Dairy fits right into this trend. It is not only a source of excellent low-cost nutrition, but also has qualities and components that support specific areas of well being, such as bone health and digestive health.

Dairy spans a whole range of food trends - with low fat, high calcium products supporting good nutrition, the trend towards occasional "indulgence" products such as premium ice-cream, and the move to more foods consumed on the run in cafes, restaurants and fast-food outlets.

What we are doing
As an expert in dairy we have a strategy that builds on our core strengths as a high volume supplier of quality commodity ingredients, and our ability to form long-term and secure supply relationships with the world's leading food manufacturers. Our strategy also focuses on opportunities for growth in specialist areas such as consumer brands, foodservice and specialty milks.

Our strategy also focuses on sustainability, supporting farmers to increase production in ways that are economically and environmentally sound.

We are building strong customer partnerships that provide secure outlets for our dairy products. This includes having supply partnerships around the world that enable us to offer year-round security of supply.

Fonterra works continuously to increase operational efficiencies and remove costs to ensure we remain one of the lowest cost, most sustainable dairy industries in the world.

Fonterra appears to have a single strategy – growth. This is ahead of return. Possibly at times based on an average rather than marginal return basis.

The strategy involves taking on low cost dairy producers head on – multiple players of varying scale, local and international, in multiple markets. Implicit is avoiding taking on any consumer brands business. This means concentrating on high volume, low to medium value products and production.

The methodology is by size/scale through acquisitions or joint ventures into milk industries where Fonterra has an edge in technology, skills or experience.

The strategy requires NZ dairying to be a reliable long term and low cost producer milk as well as in processing and distribution. Ingredients and brands businesses continue development, but these are now minor. The consumer brands business has in effect been abandoned.

Fonterra is looking for cheap milk supply anywhere, and its strategy is going to be reliant upon getting it. The belief is that what Fonterra brings to the equation is NZ milk supply chain expertise. That is undoubted, but the belief seems to be extending to include a world best practice ‘NZ dairy industry’ model.

Risks are underwritten by NZ dairy farmers and to a lessor extent the NZ government and public.

Key questions become:

  1. How good is the NZ dairy industry model? Not the myths, but looking realistically and independently from outside the industry?
  2. Does Fonterra have the leadership and skills to successfully export a questionable local industry model to other parts of the world? Not sequentially but in parallel in multiple countries at the same time.
  3. Does this help NZ dairy farmers?