Agribusiness Report: 'We saw China almost stop overnight from Covid' - Fonterra CEO Miles Hurrell

Fonterra chief executive Miles Hurrell. Photo / File

Fonterra boss Miles Hurrell gained an early insight into the emerging Covid-19 pandemic from having company "boots on the ground" in China.

Hurrell says that gave the dairy co-operative a head start when it came to preparing for the impact of the global coronavirus pandemic here.

In China, the company's food service business effectively dried up through February and into the first part of March as strict restrictions were imposed to try to stop the spread of the coronavirus to citizens well beyond the Wuhan epicentre.

"We learnt a lot through how China went through that period which was helpful for when we moved through the lockdown periods here in New Zealand," Hurrell says.

Fonterra — like other major New Zealand food producers and exporters — was quickly deemed an "essential business".

"We had to make sure we had the right protocols in place," recalls Hurrell. "Coming from a food business where we already have quite strict food safety quality controls and red lines in place, it wasn't a massive step to put in temperature recorders on the gates and tracing and a little bit more separation when people are in factories."

The timing was fortuitous. While Fonterra had scenario plans in place to take a plant down for a couple of days to clean, or in the worse case a 14 day shut-down if Covid emerged, they were through the peak of milk and had contingencies around how milk could be moved around the country to ensure that all milk was processed in the event of an outbreak.

"It would have been a different situation had that happened at peak," says Hurrell.

There was just one small incident in Edendale where a warehouse had to be closed for a thorough clean for 48 hours.

In China, it was a complex and fast evolving story.

Fonterra was still bringing milk in, says Hurrell. "But we saw China almost stop overnight."

Product was moved out of food services into other products such as ingredients or food service products for other markets.

Different labelling had to be applied. "While we took a hit on that food service business, we saw our consumer business in China respond as people started to consume more at home. And the rest of the world started to panic.

"We saw that across the globe."

Fonterra's consumer footprint in North America and Europe is not large.

In China, food service stopped but people were buying product for at home such as butter in smaller pats as opposed to the big pats.

Milk and milk powders were still being sold. Similarly, throughout Southeast Asia there was a large increase in demand through Fonterra's key products, among them lifestyle, sports and active lifestyle brands.

"One of the really interesting points was when China came out of their lockdown, and we saw food service increase again; we expected it to be maybe pizzas or going to the bakery to get yourself some bread," says Hurrell. "They went straight for the high-end cheesecakes.

"It was indulgent. It went through the roof. And it didn't last forever. But people were sick of lockdown. That caught us by surprise a bit. We did have stock on the water which we went through quite quickly, but that was quite enlightening."

That also played out a bit in New Zealand in the first weekend after the lockdown ended.

"You saw the restaurants. People queueing up for MacDonald's. We saw that at some crazy hours of the morning. But you saw the restaurants start to get some momentum again. It was pent-up demand."

Says Hurrell: "So that's why, you know, we haven't seen a significant impact on the 'P&L' of the business as a result of Covid."

There have been some pleasant surprises.

In the US, Fonterra couldn't keep up with the demand for medical nutritional products to feed patients through tubes in hospitals.

That demand won't end when the global pandemic ends.

Fonterra's strategy reset had singled out key sectors to double down on, Medical nutrition was among them.

Says Hurrell: "We really felt we'd had a good product. From a standing start last year, I might add."

Fonterra had worked for several decades with a key US customer on products — such as medical nutrition — where they felt they had a competitive advantage.

"Covid has brought it to the fore and we just see it continuing to evolve. It's probably sped up the development of our strategy.

"If we think about our R&D spend, maybe medical needs start to bubble to the surface even more so."

Fonterra's head office in Auckland's Fanshawe St emptied out as employees moved to work from home.

Hurrell stayed in the tight management centre along with incoming chief operating officer Fraser Whineray, who had recently finished up at Mercury.

"We brought Fraser in off his holiday," recalls Hurrell. "He was having a break and it was a pretty quick phone call.

"So he came in to pick up the reins on our manufacturing and support the team there. And Mike Cronin was the sort of team on the ground."

Chief operating officer Fraser Whineray was brought in off his holiday. Photo / Supplied

They were careful not to get in the way of the crisis incident team.

When the pandemic erupted Fonterra was in a good space to manage its global interface.

As part of the strategic reset, three key CEOs had been put in the regions.

"Kelvin Wickham had moved to Europe and has been hunkered down his basement," says Hurrell. "But to have him on the ground, close to his team, and have the same conversations in the same time zones has been very helpful."

Judith Swales was full-time for the Asia- Pacific based in Melbourne. Teh-han Chow was on the ground in China — without his family, adds Hurrell. "They went of to the US for the Chinese New Year and they're not back yet."

He also singles out Fonterra's strong relationship with global shipping giant Maersk and the Port of Tauranga.

Since 2011, Kotahi — which is New Zealand's largest supply chain collaboration — has been moving NZ's products around the world.

It was founded by Fonterra and Silver Fern Farms.

"We set that up seven or eight years ago," says Hurrell. "The whole premise was, 'we're an island nation a long way from anywhere and we're a small fish in a big pond'.

"One of biggest risks is not getting powder to market. It's one of the most perishable products, simple as that."

The relationship proved its worth during the Covid crisis.

Hurrell met with a top Maersk boss in January as Covid started to bite and ships started to pull out of service.

"He told us, rest assured our partnership that we've had with Fonterra for many years means you are at the top of the list — and that was just music to our ears."