We badly need dairy farmers to keep working day in and day out. Photo / File
We badly need dairy farmers to keep working day in and day out. Photo / File
COMMENT:
Fonterra chairman John Monaghan in his opening remarks about this week's strong half-year result said against the backdrop of coronavirus turmoil, the big dairy company's news "may sound somewhat trivial".
We knew what he meant, but he couldn't have been more wrong.
The financial performance of New Zealand's biggestcompany and the world's fourth-largest dairy company assumes towering new importance because of that turmoil.
Dairying was an economic sword for New Zealand against the GFC.
Now we will be looking to exporter Fonterra and the dairy industry it leads to wield that sword again against a pandemic scourge.
Dairy farmers, pilloried so relentlessly by urbanites in the past two years that many lost all sense of self-worth and questioned if farming had a future at all, have every reason to smirk about fickle fate.
Not only are they safer than the rest of us in their natural, splendid isolation, but suddenly we badly need them to keep working day in and day out. It's doubtful there will be a lot going on in plant food labs and factories for a while.
Fonterra chief executive Miles Hurrell, with much more confidence in his voice than this time last year when the company's financial woes were drawing scathing public comment, doesn't need to be told twice that NZ Inc is counting on the sharply improved performance announced this week continuing.
Fonterra will inject $11 billion into the economy this year through the milk price it pays to farmers, who spend nearly half of that in their local communities. With one eye on Covid-19, it's kept its powder dry by withholding an interim dividend, but Hurrell sounds like he and his team will be pulling out all stops to give Fonterra directors plenty of wriggle room to consider one at year-end.
Fonterra, says Hurrell, knows well its importance to the New Zealand economy, and with a frankness that echoes the company's new back-to-basics structure and business strategy, he volunteers that in the last couple of years it hasn't contributed what it should, even though its milk price has been robust.
"To see 20,000 employees get behind this result, behind our new strategy and operating model and deliver a really strong first half gives me great pride to lead a team that is purpose-driven to deliver the best outcome for New Zealand and New Zealand farmers.
"They know the importance of delivering a strong milk price and strong earnings."
Hurrell says in the midst of Covid-19 economic convulsions, dairying is standing its ground.
"Clearly there are some clouds on the horizon which we need to understand the impacts of but the industry is showing some resilience right now. [That's because] we produce food - good quality, natural food which we have in spades and it's what the world is looking for."
Fonterra chief executive Miles Hurrell. Photo / File
As well as lifting its earnings game in the first half of FY20 (total ebit $806 million up from $312m; net profit after tax $501m from $72m), and thus its contribution to NZ Inc, Fonterra is offering its muscle and moral support in these dark days, says Hurrell.
"I'm talking to the Government on a regular basis right through the Prime Minister to assure her of our position and give her some comfort as to where the dairy industry sits the moment.
"We're having those conversations and [asking] what support Fonterra can provide. Clearly the biggest part of that support is to ensure we pay our farmer-shareholders that $11 billion through the milk price and they will keep rural communities pumping along.
"But we're also looking at other ways we may be able to support New Zealand exporters through our partnerships with the likes of the Maersk [shipping] line and Kotahi at Tauranga [port]."
That support could run to helping exporters get shipping space, says Hurrell.
To support its SME service providers through the coming economic upheaval, Fonterra is making sure there are no delays in paying their invoices, he promises.
Looking ahead for the Fonterra business itself, Hurrell says "a general slowdown" is the red flag he'll be watching for.
A slowdown in dairy consumption if the world goes into recession would worry him but because milk and dairy is a staple of many global diets, he thinks the company's in a strong position.
One of Fonterra's strengths, he says, is its presence in a number of global markets, which means it has the ability to move product to, or away from, markets heavily impacted by Covid-19.
"Another strength is our product mix ability here in New Zealand. We make a range of products right from base commodities to high-end ingredients and consumer products.
"If we see one segment, one category, one market, one territory, one region start to falter we have the ability to move things around."
Asked what was for him the standout contributing factor to Fonterra's strong interim result, Hurrell says it is the company's new clarity of purpose, the simplification of its structure and strategy and knowing what it really exists for.
"That's to recognise and try to galvanise 20,000 employees and 10,000 farming families around the purpose of being a cooperative and the lifeblood of the New Zealand dairy industry.
"To focus on the goodness of New Zealand and not getting clouded by milk from a whole lot of other parts of the world which was diluting the good news story out of New Zealand."
