Andrew Ferrier: Fonterra looking forward to tackling fresh challenges head on

Having seen Fonterra turn 14 billion litres of milk into $13 billion in revenue last season, dairy farmers have mentally banked their payout of $4.10/kg of milk solids and are asking, what's next?

We see no let-up in challenges. Demand is steady and a more favourable exchange rate may help to balance the fact that commodity prices have softened slightly from historical highs.

But we are taking nothing for granted. We can expect some curve balls, such as the European Union butter issue.

That's the nature of global business and it's important we see it in that context. The European market is one we value, in terms of revenue and relationships. We look forward to an equitable resolution to this issue, which affects 3 per cent of our annual export volumes.

Our season's priorities are to continue to grow our scale and profitability, to continue to achieve efficiencies and to equip our people to drive our performance harder.

We're into a new season, knowing we're leaner and more effective than ever before. Significant efficiency gains have been achieved, with our $130 million reduction in costs already reflected in payout and the value of our shares.

But remaining lean is about more than costs. It's about being absolutely competitive and efficient, adapting quickly to meet customer needs and being faster than our competition.

We have made significant progress, streamlining global functions such as manufacturing, where we have captured economies of scale while linking our sites to customers through a single supply chain.

This relentless drive to be efficient, effective and lean will always be part of Fonterra's culture.

In New Zealand, we want to provide the opportunity for our farmers to profitably increase their supply through higher productivity, as this will help strengthen New Zealand's competitive advantage for the long term.

At the same time we are targeting global growth, recognising that demand is going to grow over the next 10 years and that we need to capture our share.

A lot of this growth will be in domestic markets behind borders that are closed to us. That's why Fonterra is active in markets such as Australia, Latin America and, most recently, China, sourcing local milk and meeting local demand for ingredients and consumer products.

Our brands will play a big part in this growth. We have good market positions in Australia, New Zealand, Asia and the Americas. Last season we saw our growth targets exceeded, with the Winning Through Brands strategy taking hold. This year's targets are even more ambitious.

Nearly $1 billion in investments have strongly positioned Fonterra for growth. Fonterra Brands is already benefiting from our investments in New Zealand to secure the Anchor, Fresh'n'Fruity and Kapiti brands.

The investment in DMV Fonterra Excipients, our joint venture with Campina, has leapfrogged us to the number one position as the largest provider to the world market of dairy-based excipients used in pharmaceuticals, with plants in New Zealand, Germany and the Netherlands.

Our consumer goods and specialty ingredients businesses contribute directly to our value-added return, which last season hit $578 million, up 7 per cent. We are confident that we are gaining momentum and expect to accelerate our value-added performance.

Fonterra has made some tough decisions in the past season. But making them means the company is now structurally organised to make decisions faster.

We can expect a tougher trading environment but we believe we are equal to the challenge.

* Andrew Ferrier is Fonterra's chief executive.