KEY POINTS:
A new three-year business plan, which Fonterra had planned to show to journalists later this month, has been obtained by the Herald.
The dairy giant's document says the global business environment is vastly different from a year ago and says the company aims to cut costs, improve efficiency and keep pushing for global growth.
"But that doesn't mean we should just sit on our hands - that's probably the worst thing to do. In times of turmoil, the strong not only survive but get stronger."
Dairy commodity prices have tumbled by about half from a peak in November 2007, and the forecast payout to farmers this season is $6 a kg of milksolids, compared with a record available $7.90 last season, with Fonterra warning it is likely to drop further.
In New Zealand Fonterra had been able to achieve cost savings broadly in line with inflation until 2008 and aimed to cut costs by another $175 million during the next three years, while planning to spend $250 million on the supply chain network, the plan said.
The new plan, shown to farmers at a private meeting before the AGM in November, claims to be first and foremost about securing future sales channels for New Zealand milk.
"But if we're going to be seen as a credible global partner by our customers, we need to broaden our milk supply base. This includes looking at sourcing additional milk offshore," it said. "Future growth in this area could involve equity partners, including New Zealand farmers."
A capital restructuring plan to ensure funds for global growth - with the preferred model to set up a new asset-holding company listed on the stock market - stalled last year after it appeared farmers were unlikely to support the board's preferred option.
The new plan was drawn up based on what could be achieved within the existing balance sheet, Fonterra said.
"For the most part, growth initiatives will be funded from operating cashflows. And we will be paying down some debt. Given the limited access to equity financing at this stage, it may be necessary to free up funds in parts of the business that are less strategic, in order to invest those funds elsewhere in higher priority areas."
The plan said overseas milk sourcing and processing would address customer concerns about geographical risk, give more security of supply, offset New Zealand's seasonal curve and drive lower costs.
In its consumer businesses, which included branded retail products, Fonterra planned to expand into new parts of Asia, Africa and the Middle East, while in Latin America the emphasis was on growing Soprole and an investment in Dairy Partners Americas.
One of the biggest opportunities closer to home was in yoghurt and dairy desserts in Australia. "The plan being implemented in China has been heavily impacted by recent events," Fonterra said, referring to the tainted milk scandal which caused it to effectively write off its
43 per cent investment in dairy company Sanlu at a cost of about $201 million.
The new plan said Fonterra had a strong ingredients business in China, with good sales volumes of New Zealand-sourced product.
"Looking forward, any future activity must ensure we have the necessary control of the milk supply chain."
* Three-year aim
Fonterra to cut costs in NZ by $175 million.
Spend $250 million on the supply chain network.
Look at sourcing milk from overseas.
Fund growth mainly from operating cashflows.
Pay down debt.
