Fonterra pulls back on organic dairy

Photo / Brett Phibbs

Fonterra said today it is planning to scale back its unprofitable organic dairy operations amid waning public appetite to pay a premium for such products.

The cooperative plans to concentrate most of its North Island organic suppliers around its Hautapu processing plant in the Waikato, which will have the effect of reducing the number of suppliers. Its two other certified organic plants at Waitoa and Morrinsville will reduce the amount of product they process.

At the same time, Fonterra will focus its organic range on cheese, which offer the highest margin, and focus on sales to Asia and Australia, where there are "stronger returns and growth potential."

"We understand the big commitment many of our farmers have made to the organics programme and that this transition will not be an easy one to make," said group director supplier and external relations Kelvin Wickham.

"We will honour all of our organic contracts through to their formal termination dates, which in some cases are four-five years away and we will work with our farmers as they make the transition out of the organics programme," he said in a statement.

Fonterra "remains committed" to the organics market "but as growth in this market has significantly slowed since the global financial crisis, Fonterra needs to make changes to its organic operations," Wickham said. Still, the organics market was "hit hard by the global financial crisis and market indications are it will not recover to previous levels."

Prices and volumes for packaged organic dairy foods are still below 2008 levels, Fonterra said.

Consumers are more confident that non-organic products are now produced more sustainably, reducing the pressure to buy organic.

Fonterra Chair Simon Couper said the news would come as a blow to some of its shareholders.

"We are determined to work with the co-operative and senior management to provide those affected with as much assistance as they require moving forward."

Couper said he understood the economic realities behind the decision but said that will be of little comfort to those affected by today's decision.

"From a business point of view organics is no longer an efficient market, in fact it loses money.

"We understand that for many of our organic farmers it is not solely about money - they have made a significant commitment with regard to both time and effort to convert."

- BusinessDesk / NZ Herald Online