Dairy giant Fonterra may cut "hundreds" of jobs from its head office and support functions as soon as later this year as it attempts to rebalance its operations and, in the words of chief executive Theo Spierings, "trim the sails".
In an interview with Radio New Zealand Spierings gave more detail around an internal review that Fonterra apparently commenced in December, but has referred to previously only in oblique terms publicly.
Spierings conceded that Fonterra needed more frontline people "in market" and fewer in support. At the moment it is believed to have about 1500 people in support and head office functions.
“You talk about hundreds of people more in market and that means less in group functions," Spierings said, conceding that the "hundreds" more in market would be pretty much offset by the same number being chopped from head office and support.
And he indicated that the moves to chop head office and support staff would come before growth in frontline staff occurs. Draft proposals are set to be discussed by the board next week and then a confirmed plan is set to be put to farmers by the start of August.
“...It’s a shift of people and capabilities – and that will have some consequences. But that is what I mean by trimming the sails.
“...Potentially in the first phase we would address the group function harder because growth of sales it goes step by step. So we would address the group function in one go and growing and selling milk - that goes gradually.”
The review is being led by a Fonterra team of "15 key talents from all over the world" and with outside assistance being provided with "benchmarking" and "a fresh set of eyes" from external consultants McKinsey & Co.
The review comes as Fonterra starts to come under criticism from its shareholder farmers in the face of rapidly declining global dairy prices and with a forecast milk price for farmers of just $4.40 per kilogram of milk solids in the season just finished, compared with $8.40 a year ago, while the opening forecast for the new season is $5.25.
The Reserve Bank has expressed concern and estimated that about a quarter of farmers were experiencing negative cash flow in the 2014-15 season.
Spierings.believed that Fonterra "absolutely have our house in order" but conceded that "the volatility we see right now is really so severe that there is definitely pressure on farmer balance sheets".
“When we announced in December a milk price of $4.70 [subsequently reduced to $4.40] that’s when we as management started to review weather conditions. They have changed. It’s much tougher out there. So, where do we need to amend? Where do we need to trim the sails?
“…We need to trim the sails because the weather is rough…
“...Everything is in scope. This is a complete business review from our management team.
“...It is really turnover line, growth, it’s cost and it’s cash.”