Fonterra

Fonterra is a multinational New Zealand company and New Zealand's largest company by turnover. As a cooperative, Fonterra is owned by approximately 11,000 farmers and is the sixth-largest dairy company in the world.

History

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^{citation needed}.

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.

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.^{citation needed}

Brands

Key Brands

Brands in New Zealand

Brands in Australia

Business units and subsidiaries

Environmental performance

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."^[5]

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.^[6]

In 2006 Fonterra faced opposition to an application to discharge 8500 m³ of wastewater into the Manawatu River.^[7]

Transpower Project Innovation Award Winner: Fonterra Co-operative Group - Whareroa heat recovery loop

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.

Sanlu baby milk scandal

In September 2008, one of the biggest dairy companies in China, the Shijiazhuang Sanlu Group, 43% owned by Fonterra^[8], recalled more than 10,000 tonnes of infant milk powder after a food safety scandal involving contamination by melamine. Several children have died and thousands of others have fallen ill with kidney and urinary problems after drinking the adulterated formula: a 5-month-old boy and an 8-month-old girl from Gansu Province on 1 May and 22 July respectively—long before the incident become public.^[9] ^[10] 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.^[11]^[12] Clark said: "I think the first inclination was to try and put a towel over it and deal with it without an official recall."^[13]

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."^[14] 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.^[15] Ferrier was also condemned by Business Day for his "silent hand-wringing", when he should have immediately blown the whistle.^[16]

ON 24/9/2008, Mr van der Heyden^[17], 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.

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 admitted that people deeper down in their organisation in China could have been "fooling us".

On 17 September 2008 Fran O'Sullivan^[18] 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:^[19]"Clark(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 24 September 2008 Fonterra chief executive Andrew Ferrier denied that Fonterra had any knowledge of revelations that Sanlu lied for eight months to hide complaints about its melamine-contaminated baby formula.^[20]

On 3 October 2008 NZ Green MP Keith Locke claimed Chinese spied on New Zealanders through online phone service Skype whenever "milk powder" is mentioned.

“Our Government should make an official complaint about China’s surveillance of Skype communications, which may include business communications from New Zealand firms such as Fonterra, as well as personal conversations,” Mr Locke says.^[21]

Proposed changes to capital structure

In November 2007 the board of directors announced ^[22] 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 ^[23] ^[24] 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. ^[25] ^[26]

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