Fonterra refocuses dairy strategy

Fonterra is shaking up its strategy with a new plan to grow volumes and value by focusing more on emerging markets and products that meet growing consumer demand for dairy nutrition.

Fonterra is shaking up its strategy with a new plan to grow volumes and value by focusing more on emerging markets and products that meet growing consumer demand for dairy nutrition.

Chief executive Theo Spierings said the strategy refresh was built on an in-depth look at the co-op’s strengths, and social and economic trends.

“Strong economic and population growth in emerging markets is driving a situation where global demand for milk is forecast to grow by more than 100 billion litres by 2020, with New Zealand expected to contribute only 5 billion litres of additional supply by that date,” Spierings said.

“We call it the Three Vs – volume, value and velocity. With overall demand growing, we need to grow volumes to protect our position as the world’s leading dairy exporter. In addition, nutritional needs, particularly among the young and the elderly are getting more urgent and specific, which is where we have the capability to add significant value."

The full strategic refresh amounts to over 100 projects – many already underway - including:

A strong push on the fast-growing emerging markets of China, ASEAN and Latin America

Fonterra already has established businesses in these regions.

“With limited milk supply, we can’t do it all. We see much lower growth of dairy exports from New Zealand to the mature markets of Europe and North America so will need to refocus our operations there."

Optimising New Zealand milk production

“We already have big projects underway to improve the way we use our manufacturing plant in New Zealand, drive efficiencies and add value for customers so we can beat base commodity prices."

Building integrated milk pools (secure, high-quality sources of milk integrated with Fonterra’s business) offshore

“When we looked at the unique strengths of the co-op the first obvious thing is that we know how to produce safe, high-quality and relatively low cost milk. That’s a strength we’ve honed in New Zealand for well over a hundred years, and are now doing in Australia and Latin America,” Spierings said.

“Going forward we see the potential to significantly grow milk volumes outside of New Zealand by developing a high quality local milk supply and integrating it more closely with our business in China.

He said Fonterra's pilot dairy farms in China were producing some of the highest quality milk in the country.

"We are looking to accelerate the development of a quality milk supply in China and integrate that with our local business by manufacturing products for Chinese customers.

“We don’t have to fully own the farms or factories – we can achieve the same result through partnerships and supply agreements, which is how we run our integrated businesses in Australia and Latin America.”

Growing volume in higher value nutrition

Spierings said Fonterra would continue to move higher up the value chain, selling more consumer branded and out-of-home nutrition.

“We currently have some great high margin consumer products and there is an opportunity to grow sales further by pushing into new markets and with new products.

“Also, we see the opportunity to develop more base nutrition and grow sales volumes in emerging economies – particularly in China and ASEAN.”

A tighter focus on meeting the advanced nutrition needs of mothers and babies, as well as ageing populations

“In the area of advanced nutrition, we will focus on the nutritional needs of mothers and babies and healthy ageing.”

Paediatric nutrition was the fastest-growing dairy category in the world, he said, and Fonterra already had a substantial business manufacturing high standard ingredients for multinational infant nutrition companies.

“There is an opportunity for us to build on this and also manufacture for leading Chinese nutrition companies, using New Zealand milk and our local assets.”

On the branded consumer side, Fonterra would continue to extend its Anmum maternal nutrition brand across Asia.

It would also support the recent strong growth of its Anlene bone health brand by pushing into new markets and extending the brand to include joint and muscle health.

“With rapidly ageing populations in the west and in China, Anlene is a true power brand for us with the scope to stand for total mobility, not just bone health.”

Idealog has been covering the most interesting people, businesses and issues from the fields of innovation, design, technology and urban development for over 12 years. And we're asking for your support so we can keep telling those stories, inspire more entrepreneurs to start their own businesses and keep pushing New Zealand forward. Give over $5 a month and you will not only be supporting New Zealand innovation, but you’ll also receive a print subscription and a copy of the new book by David Downs and Dr. Michelle Dickinson, No. 8 Recharged (while stocks last).