Fonterra, a dairy cooperative based in New Zealand, is aiming to achieve NZ$1bn ($596m) in cost savings, potentially leading to job cuts.
According to CEO Miles Hurrell, while this focus on efficiencies may result in staff reduction, the company’s goal is to drive value growth without compromising it. In a letter addressed to its farmer owners, Hurrell stated, “This is about enhancing our culture of continuous improvement and maintaining progress towards our long-term targets by being very deliberate about where we focus our people and your cash.”
The cost-cutting plan will be implemented over the next seven years as part of Fonterra’s 2030 strategy course, which involves divesting country-specific assets. The cooperative stated in the letter filed with the New Zealand stock exchange, “This goal will help offset higher inflation expectations, and we intend to achieve it through a range of projects that will streamline how we operate. These projects include operational efficiencies, reducing cash costs across the business, and digitization of business processes.”
Hurrell acknowledged the challenges posed by the recent revisions to Fonterra’s forecast farmgate milk price, attributing the decline in prices to reduced demand from China for imported whole milk powder. He explained, “Strong domestic milk supply growth in China has been propelled by high raw milk prices over the past few years. More recently, China’s extended Covid-19 lockdown has reduced consumer demand for fresh milk products, and this demand has not yet recovered to the previously forecasted levels.”
However, Hurrell emphasized that beyond whole milk powder, Fonterra’s Greater China business is performing well, with continued strong demand for its broader product categories.
Fonterra’s 2030 strategy plan prioritizes value-added opportunities in New Zealand milk, with the possibility of divesting assets in Australia and Chile. While the cooperative sold its Chile dairy assets to Peru’s Gloria Foods last year, it decided not to proceed with selling its Australian arm, citing its successful performance in the country.
