By Bernard Hickey
Fonterra's new chief executive, Theo Spierings, has signalled a review by Fonterra of the price of milk for consumers in New Zealand.
Spierings told a news conference on his third day in the job that he was bothered by a fall in New Zealand consumption of milk and realised consumers were concerned about how expensive milk had become.
He said Fonterra would take the issue "back to the drawing board" for review.
“The perception is the price is too high,” he told reporters at his first briefing for media since he started as CEO on Monday. He replaced Andrew Ferrier, who retired on Friday after 8 years in the job.
“It’s bothering us. We will take a fresh look at this issue - take it back to the drawing board," he said.
"We do believe that as the leader in dairy nutrition in the world in the communities and the countries where we operate in we have to make sure the consumption per capita is growing, not declining," he said.
Spierings pointed out the highest consumption of dairy products per capita was in Holland, where the population was also the tallest: "And you need it for your rugby game."
He gave no details. The price of fresh milk has become a political issue, with the parliament’s commerce select committee conducting an inquiry and a separate inter-departmental officials group reviewing the raw milk regulations and Fonterra’s enabling legislation.
Spierings, who has been in the job three days, said he did a tour of retailers last weekend to check prices of dairy products available to consumers.
“What you do see is a wide assortment and competition in the offerings,” he said. “It is a normal retail scene. But the perception is the price is too high and perception is reality.”
Fonterra needs to take the issue seriously because it needs to ensure consumption continues to grow rather than risking decline.
The briefing comes a week after Fonterra reported record sales and profit, and its biggest-ever farmer payout. In a season of superlatives, milk production and exports also hit record levels. See more here in our article last week.
The company reiterated its forecast for its payout to decline in the 2012 season as global economic growth falters and Northern Hemisphere producers increase output.
Long term strong, short term volatile
Spierings said the long-term outlook for dairy product demand is bullish. Global demand is forecast to grow by 160 billion litres by 2020 while New Zealand’s production is expected to grow by five billion litres.
Long term, demand is definitely outpacing supply, he said. “If short-term there is a deep recession, the second in three to four years, that could have an impact like it did in 2009. You could see commodity prices coming down for a short while.”
Europe’s debt crisis could have been avoided “with the right measures” though the many voices and viewpoints in the region have hampered the process, he said.
Fonterra was “so big, so important” that it is intertwined with New Zealand economy in the same way as Nokia was to Finland and Nestle to Switzerland, he said. “It brings a responsibility with it.”
Spierings said it was Fonterra's responsibility to be a strong company for New Zealand and to protest New Zealand's reputation for a clean, green environment.
(Updated with video, comments, quotes, detail)
(With Business Desk)