Fonterra on the right track

Federated Farmers confidence that Fonterra is on the right track, has been vindicated in its latest half-year results.



“This time a year ago, Federated Farmers applauded Fonterra’s board and management for navigating some of the roughest trading conditions in a generation,” says Lachlan McKenzie, Federated Farmers Dairy chairperson.



“While revenue is down 3.7 percent, this really reflects the rollercoaster ride commodities went through and despite everything, overall profit for the past four years is up 19 percent.



“Fonterra suppliers are still in line for the second best payout since formation, showing just how well it’s done. The news out of ingredients is especially welcome as this goes to heart of how value add is built.



“This half-year result should finally put the naysayers to bed, in respect of Fonterra’s capital structure review. Fonterra’s debt has been tracking down and is now 53.3 percent - a15 percent reduction in the space of a year.



“Reduced inventory in a better demand environment has been a factor but it means Fonterra’s balance sheet, when combined with its retentions policy, provides a sound means to grow and strengthen the Cooperative.



“As Sir Henry van der Heyden put it, Fonterra’s farmers and board want it to be 100 percent controlled at home. Repeatedly stressing the word ‘cooperative’, is very welcome.



“Together we are strong and as Fonterra wishes to grow volumes out of New Zealand, we’re hopeful Fonterra will join us in the push to treat water storage as key infrastructure, not to mention regional council policy.



“This goes to the heart of what we do best as an economy and it’s critical to grow the volume Fonterra seeks. While milk volumes will be up on last year, a lack of water storage means we are not farming to full potential so water storage is about economic resilience.



“The other dark cloud is what affect the Emissions Trading Scheme (ETS) will have on key inputs. While Fonterra has slashed its CO2 footprints by 300,000 tonnes, the ETS remains literally the gorilla in the room.



“Yet what I really welcomed was that Fonterra lauded the productivity of New Zealand’s dairy farmers.



“Farmers efficiency per unit has grown at a sustained rate of one percent per annum for the past 20 years and that outstrips the rest of the economy by a very long way,” Mr McKenzie concluded.