Fonterra Co-operative Group in New Zealand is facing pressure from farmers demanding stronger payouts and dividends amid rising costs. The latest DairyNZ breakeven milk price has surpassed NZD 8 per kilogram of milk solids. The co-operative has introduced a revised strategy aimed at enhancing returns, increasing capital return targets, and implementing a new dividend policy. Farmers are optimistic about these changes, but they stress the importance of maintaining competitive milk prices.
Fonterra Co-operative Group, a leading dairy exporter based in New Zealand, is facing mounting pressure from its farmers to deliver improved payouts and dividends. The co-operative, which serves thousands of dairy farmers across the country, has seen its members express concern over rising operational costs, with the latest DairyNZ breakeven milk price exceeding NZD 8 (USD 4.86) per kilogram of milk solids.
John Stevenson, Chair of the Fonterra Co-operative Council, emphasized the financial strain on farmers,
“Over the past 24 months, many farmers have felt substantial financial pressure. Fonterra needs to execute its revised strategy to ensure our returns significantly outpace our costs.”
John Stevenson, Chair of the Fonterra Co-operative Council
In response to these challenges, Fonterra recently unveiled a revised strategy aimed at bolstering its Ingredients and Foodservice businesses. This strategy includes ambitious targets to raise the average return on capital to 10-12%, up from the previous 9-10%. Additionally, Fonterra plans to implement a new dividend policy that will distribute 60-80% of earnings to its farmer shareholders and unit holders, compared to the earlier range of 40-60%, while still maintaining the maximum sustainable Farmgate Milk Price.
Chairman Peter McBride reiterated the co-operative’s commitment to providing stability and maximizing returns for its farmer owners. “The co-op exists to provide stability and manage risk on behalf of farmers, while maximizing returns from milk and invested capital,” he stated. “By implementing this strategy, we can enhance returns for our owners and continue investing in the co-op.”
Farmers have responded positively to the new targets set by the co-operative. Stevenson noted that successful execution of these goals would result in stronger returns and significant investment in Fonterra’s growth. He stressed the importance of a competitive milk price, especially given the stiff competition from other milk processors. “A strong, sustainable milk price is vital for our farmers, but business performance is equally critical,” he added.
In addition to these strategic updates, Fonterra is advancing plans to divest its consumer businesses in New Zealand, Australia, and Sri Lanka. The cooperative has confirmed that the divestment process is ongoing and making progress.
