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Idealog—in the ideas business

Fonterra organic cutback a ‘bolt from the blue’

Fonterra's decision to slash its organic dairy operations comes as a "bolt from the blue", says advocacy organisation Federated Farmers.

The dairy cooperative plans to cut back by:

  • Concentrating Fonterra’s North Island organic suppliers in one hub around its key certified organic processing site – Hautapu – reducing Fonterra's number of suppliers
  • Reducing the amount of product processed at Fonterra’s other two certified organic sites – Waitoa and Morrinsville
  • Prioritising the organic product range to focus on cheese, which it says provides the best returns
  • Focusing on emerging Asian and Australasian organics markets

Fonterra spokesman Kelvin Wickham said growth in the organic market had significantly slowed since the global financial crisis and the restructuring aimed to turn around a loss-making operation to break even.

But Gray Beagley, Federated Farmers' dairy organic spokesman, hit back, calling the announcement a "bolt from the blue".

“It’s disappointing and leaves us in a lurch. We need to ask how hard Fonterra has worked to develop new markets locally and internationally.

“Only last year, Fonterra said publicly that the only way for organics was up even in the current economic climate. It even rescued suppliers from the defunct Taranaki based New Zealand Organic Dairy Farmers Co-operative," he said.

“Farmers don’t take kindly to spin and organic dairy farmers like me are spinning as we face one of three choices.

“As organic dairy farmers, we believe in a philosophy and a way of farming but to continue doing so without a milk premium affects our profitability and viability. We could flag organics altogether, but that will be heart breaking and waste the time, money and effort we’ve put into our farm.

“The final option is to leave Fonterra at the end of our contract in order to supply someone more committed, or to join with other like-minded farmers."

Willy Leferink, Federated Farmers Dairy chairperson, criticised Fonterra's handling of the situation.

"It doesn’t leave a good taste in the mouth and has wider implications for supplier relationships," he said.

Fonterra did not raise the issue at a summit meeting last week, said Leferink, nor did it inform all suppliers before releasing a media statement.

Leferink said consumers were seemingly unwilling to pay an organic premium.

“Fonterra’s organic consolidation is a sobering international assessment of global organic demand," he said.

“It’s a warning to those pursuing policies that add costs onto production without any payback. It also warns those who believe a niche should become an industry-wide template. Niches are niches for good reason."

But organic sector commentator Bill Quint told TVNZ worldwide consumer for organic milk had been "growing in double digits".

That demand had slipped more recently, but was still holding up in comparison to other sectors.

Wickham said Fonterra would honour all its organic contracts until their expiry, some of which were due to run for four or five years more.

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We're steamlining our processes, we need everyone using palm kernel at once! That forest wont deforest itself New Zealand! Do your bit, you lazy sods!

They've got you over the milk-barrel.

That's funny…I often pay above the odds for organic milk & our local shop is often sold out unless I get in early. perhaps you marketing & supply geniuses just need to do a better job???

Agree that Fonterra is full of spin on this one. Perhaps it has finally admitted corporately that GE pastures and palm kernel fed cows are too much of a conflict with the ethos of organics. Apparently the Chinese are keen to pay for these ethically tainted dairy products as long as they have security of supply.
Fonterra markets its milk on images of 'clean and green' NZ, when the reality is a lot more complex. New Zealand consumers pay doubly for their tainted milk because it is our environment that Fonterra's farmers are exploiting to make those profits. And its the farmers that reap the payout dividends when Fonterra does well. The outlook is worse with expansion of intensive dairying into new areas such as the iconic McKenzie Country and the fragile aquifers of the Canterbury plains.

Looking at European markets, the rise of organic supermarkets, stores, cafes, and restaurants, I can say that this is short termism by Fonterra. The way forward for us all is sustainablity and care of our fragile earth. Organic dairy farmers may have to take a leaf out of the River cottage book and make their own products. have farm cafes and shops - make cheese, smoothies, yoghurts etc. I and many others are willing to pay a top price for an ethically produced product. Say no to intensive farming!

Fonterra assert that “Consumers are gaining more confidence that everyday products are being produced more sustainably and are more acceptable, so they no longer see the need to pay the premium for most organic products.” Well this consumer doesn't have confidence in conventional dairy products, especially when Butter/cream/cheese were tested for pesticicde residues, 100% of all samples tested positive and three pesticides were detected. See “The Dirty Dozen - Foods to avoid” here:

This is about the dichotomy in the co-ops structure. The Farmers are after profitability and the Corp wants productivity.

There was nothing wrong with the business plan produced or the Organics Team Strategy. They had orders filled out till next June for Powder/Whey (I believe). They just couldn't guarantee supply of the product because milk processing didn't like handling the small quantity.

Next thing that happened was Joanna Mobley cut the Organics Sales Team from 7 to 2.5 people just as the product was coming online, then told everyone the product was hard to sell!

Its really just an old fashioned bun fight between Milk Processing and Specialty Milk Branding. The numbers are a twisted justification at best.

Agree with previous comment… the Commodity and Manufacturing guys were out to kill off organics.. too much trouble with the routing.. so they bundled milk.. if you know anything about what went on inside the biz.. Mobley stopped them from closing organics

just read about DCD contamination..less hero worship now for the new CEO. Lucky that someone stood up for Organics. Was a shame it got downsized to pay the bills, but Mobley did manage to keep it afloat.. NZ needs more green farming, its what we do best

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