strongest performance in almost five years<\/a> with the index up 6.7% \u2013 the biggest rise since March 2021, when the first event of that month recorded a 15% gain.<\/p>\nMuch of last year\u2019s weakness was put down to stronger than usual milk production in New Zealand and in most other dairy-producing nations.<\/p>\n
Murray said geopolitical uncertainty may also have played a part in last year\u2019s sharp decline.<\/p>\n
The prolonged US Government shutdown, which affected food-stamp payments, meant the US had more dairy product to export and that may also have weighed on prices.<\/p>\n
While increased production globally had compressed prices, volumes were now starting to tail off, particularly now that the domestic season is past its peak.<\/p>\n
\u201cI don\u2019t see it [the milk price] moving massively around now, in the absence of some other form of geopolitical shock that might encourage something in that way, so I think the fundamentals remain the same,\u201d Murray said.<\/p>\n
\u201cI think ultimately, producers in Europe and the US will more quickly react to pricing coming down because they have more levers in their production that allows them to be able to do that.\u201d<\/p>\n
Advanced ingredients<\/p>\n
Fonterra has been pushing hard on the advanced ingredients side of its business over the last few years.<\/p>\n
In foodservice, China \u2013 where Fonterra has retained its Anchor Food Professionals brand \u2013 will remain a big part of the business, but Murray said there was a lot of opportunity in Southeast Asia \u2013 particularly in Vietnam.<\/p>\n
In China, he noted population growth is slowing, but the dynamic of an expanding, wealthier middle class had not changed.<\/p>\n
\u201cChina remains a big opportunity for further growth and there\u2019s certainly plenty of that population we haven\u2019t accessed yet.\u201d<\/p>\n
As far back as 2022, Fonterra has been talking about taking costs out of the business.<\/p>\n
\u201cWe need to make sure that our cost base now reflects the fact that we\u2019re a leaner and a simpler organisation, so we haven\u2019t got the complexity of consumer in there,\u201d Murray said.<\/p>\n
In some countries, Fonterra might have a smaller office footprint without the consumer segment \u201cso there is an efficiency play here that that we go after\u201d.<\/p>\n
The plan out to 2028 was to continue to improve the efficiency of the co-op\u2019s manufacturing network, particularly with advanced technology, Murray said.<\/p>\n
\u201cWe have a good, very high-scale manufacturing network, but there are definitely opportunities for us to be able to do that, and some of that will come with technology.\u201d<\/p>\n
![\"Fonterra's]()
Fonterra’s sale of its Mainland consumer business is expected to go through in the first quarter.<\/p>\n
With the sale of the consumer business, Fonterra will be a much smaller entity, continuing a long-running trend.<\/p>\n
Last year, Rabobank said Fonterra had slipped a notch to become the world\u2019s seventh-biggest dairy company, while Lactalis retained its number one spot.<\/p>\n
Just over a decade ago, Fonterra was in the top three.<\/p>\n
Post-sale, Rabobank expects Fonterra\u2019s ranking to drop to 10th, but Murray was unfazed by the prospect.<\/p>\n
\u201cI fundamentally believe that we\u2019re still going to be selling the same amount of milk and we\u2019re going to generate more profit for it.<\/p>\n
\u201cI don\u2019t think that\u2019s a bad place for us to be sitting.<\/p>\n
\u201cDo I think we have growth opportunities? I genuinely believe that we do, but we\u2019re never going to be the size of a Lactalis because we are a slightly different model.<\/p>\n
\u201cAnd if I wanted to go and try and access other milk pools or something, it could be bigger, yes, but that\u2019s not what we are and not who we are.\u201d<\/p>\n
Murray said Fonterra would like to increase its share of the New Zealand milk pool \u201cbecause it will always be a little bit of a handbrake on us being bigger\u201d.<\/p>\n
\u201cFundamentally, we believe that a dairy co-op of scale is really important for the industry.\u201d<\/p>\n
Reference products<\/p>\n
On the commodities side, Fonterra is perhaps best known for the reference products that \u201cinform\u201d the farmgate milk price \u2013 whole milk powder and skim milk powder, and their byproducts, butter, anhydrous milk fat and buttermilk powder.<\/p>\n
Murray said Fonterra is doing a lot going outside of the reference products.<\/p>\n
\u201cWe are really developing those strong customer relationships that allows us to build over time and be in a space where we can then choose to innovate with the customer.<\/p>\n
\u201cWe can invest with the customer and so we get good long-term relationships because in ingredients, good long-term customers are really, really important.<\/p>\n
\u201cThey allow us to be able to get close to where future trends are going and where future demand might be, which allows us to make sure that, you know, that we can service that.\u201d<\/p>\n
![\"Fonterra]()
Fonterra will focus on making its factories more efficient. Photo \/ NZME <\/p>\n
Non-reference products generate a return on capital of around 17% to 18% compared with 5% for the regulated reference products.<\/p>\n
As Fonterra\u2019s capital comes from its farmers, it needs to be as efficient as it can possibly be with it, Murray said.<\/p>\n
Over time, the proportion has gone down from about 50\/50 to 60\/40 in favour of non-reference product.<\/p>\n
For the consumer division, Fonterra\u2019s return on capital never got above 10%, hence its sale.<\/p>\n
Outlook <\/p>\n
In terms of the outlook, Murray said the co-op is in a good place.<\/p>\n
\u201cThe only thing that I would say is that there are geopolitical risks.<\/p>\n
\u201cIf we see big events that either cut off trade access or cut off shipping lanes \u2013 if we see those sorts of things then we are in a different ball game.\u201d<\/p>\n
From here, Murray said Fonterra will be about delving more deeply into advanced nutrition and further into foodservice, while focusing on higher efficiency.<\/p>\n
\u201cI feel that what we have put in place is a very solid plan.\u201d<\/p>\n
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.<\/p>\n
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter<\/a> \u2013 your essential weekly round-up of all the business news you need.<\/p>\n","protected":false},"excerpt":{"rendered":"When it comes to adding protein to food products, dairy protein is often the choice because of its…\n","protected":false},"author":2,"featured_media":271389,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[17767,3225,74,806,23434,8834,138,4190,3938,7226,1437,302,23394,111,139,69,6662,90,2859,1133,1109,21938],"class_list":["post-271388","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-42b","tag-according","tag-after","tag-as","tag-bets","tag-big","tag-business","tag-demand","tag-executive","tag-fonterra","tag-global","tag-its","tag-mainland","tag-new-zealand","tag-newzealand","tag-nz","tag-off","tag-on","tag-protein","tag-sale","tag-scale","tag-surges"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/271388","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=271388"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/271388\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/271389"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=271388"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=271388"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=271388"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}