Fonterra organic cutback a 'bolt from the blue'

Fonterra organic cutback a 'bolt from the blue'

Fonterra says consumers are unwilling to pay a premium for organic dairy products.

Fonterra's decision to slash its organic dairy operations comes as a "bolt from the blue", says advocacy organisation Federated Farmers.

The dairy cooperative plans to cut back by:

  • Concentrating Fonterra’s North Island organic suppliers in one hub around its key certified organic processing site – Hautapu – reducing Fonterra's number of suppliers
  • Reducing the amount of product processed at Fonterra’s other two certified organic sites – Waitoa and Morrinsville
  • Prioritising the organic product range to focus on cheese, which it says provides the best returns
  • Focusing on emerging Asian and Australasian organics markets

Fonterra spokesman Kelvin Wickham said growth in the organic market had significantly slowed since the global financial crisis and the restructuring aimed to turn around a loss-making operation to break even.

But Gray Beagley, Federated Farmers' dairy organic spokesman, hit back, calling the announcement a "bolt from the blue".

“It’s disappointing and leaves us in a lurch. We need to ask how hard Fonterra has worked to develop new markets locally and internationally.

“Only last year, Fonterra said publicly that the only way for organics was up even in the current economic climate. It even rescued suppliers from the defunct Taranaki based New Zealand Organic Dairy Farmers Co-operative," he said.

“Farmers don’t take kindly to spin and organic dairy farmers like me are spinning as we face one of three choices.

“As organic dairy farmers, we believe in a philosophy and a way of farming but to continue doing so without a milk premium affects our profitability and viability. We could flag organics altogether, but that will be heart breaking and waste the time, money and effort we’ve put into our farm.

“The final option is to leave Fonterra at the end of our contract in order to supply someone more committed, or to join with other like-minded farmers."

Willy Leferink, Federated Farmers Dairy chairperson, criticised Fonterra's handling of the situation.

"It doesn’t leave a good taste in the mouth and has wider implications for supplier relationships," he said.

Fonterra did not raise the issue at a summit meeting last week, said Leferink, nor did it inform all suppliers before releasing a media statement.

Leferink said consumers were seemingly unwilling to pay an organic premium.

“Fonterra’s organic consolidation is a sobering international assessment of global organic demand," he said.

“It’s a warning to those pursuing policies that add costs onto production without any payback. It also warns those who believe a niche should become an industry-wide template. Niches are niches for good reason."

But organic sector commentator Bill Quint told TVNZ worldwide consumer for organic milk had been "growing in double digits".

That demand had slipped more recently, but was still holding up in comparison to other sectors.

Wickham said Fonterra would honour all its organic contracts until their expiry, some of which were due to run for four or five years more.