At Fonterra we have a saying - it all starts on the farm. I also started my life by growing up on a dairy farm in New Zealand. This is me milking a herd of cows on the farm I own with my brother in New Zealand. I have seen dairy co-operatives in New Zealand develop over the past 30 years culminating in the formation of New Zealand’s largest company, Fonterra, in 2001.
Who we are today has been influenced by the rich history of the New Zealand dairy industry. Our story is one of collaboration – first of individual farmers who needed to work together to get a fair price for their goods; and secondly of separate co-operatives that needed to work together to sell their goods overseas. Fonterra is the result of the industry’s collaborative efforts. Iwill walk you through the milestones in our history, the achievements of our farmers and the changes in our industry.
The New Zealand dairy industry had its humble beginnings in 1814 when British missionary Samuel Marsden brought a bull and two heifers to the shores of New Zealand.As the 1800’s progressed, pioneers came from Britain seeking a better life for themselves and their families. Often from Britain's lower classes, these settlers were hard-working, determined and driven to succeed in their new homeland. Keen to own land, some chose the physically demanding farming lifestyle; requiring back-breaking effort to clear trees in order to graze land and labour-intensive hand-milking of cows. The perseverance and grit of these early pioneers is a trait still found in the New Zealand farmer of today.
The first farmers produced small quantities of butter and cheese, and bartered these goods with local storekeepers. The storekeepers, often left with goods they did not need, were forced to find markets outside the small local towns. The dairy export industry in New Zealand was about to begin.Due to its proximity to New Zealand, Australia was the natural export destination and the first cheese shipment left for Sydney in 1846.
From there the industry grew and New Zealand’s first co-operative, theOtago Peninsula Cheese Factory was formed in 1871 in New Zealand’s South Island. The co-operative allowed farmers to pool their resources (milk and capital) and produce cheese collectively. Each farmer was a part-owner of the co-operative and able to vote on its management. Fonterra, New Zealand’s largest co-operative, is guided by the same principles of collaboration.
Over the next 20 years thenumber of co-operatives grew and the export industry expanded. However, it was proving increasingly difficult for the many small co-operatives to efficiently service export markets.
To improve the country’s export efficiency the Dairy Export Control Board (DECB) was established in 1923 by the New Zealand Government. Set up to control all dairy exports, the DECB gave farmers the power to access new markets and earn better returns for their products. The DECB was able to source new markets and fulfil bulk orders by drawing on the resources of the entire industry as opposed to only those of one co-operative. As a result the industry prospered, and by the 1930’s there were 400 dairy co-operatives.
By the 1960’s the United Kingdom was New Zealand’s largest dairy export market, accounting for 70% of trade. However, this reliance on a single market was cause for concern when Britain first considered joining the European Economic Community (EEC). As a member of the EEC, Britain would incur less taxes and tariffs by trading with other EEC countries, making New Zealand a less desirable trading partner. To counter this threat the New Zealand Dairy Export Control Board (DECB) began to seek new markets and product opportunities. By the late 1960’s the 400 dairy co-operatives had consolidated down to 100 as companies merged to extract cost benefits of economies of scale. In 1973, Britain joined the EEC and the New Zealand dairy industry began to develop its expertise in global exporting - flourishing through the sourcing of new markets and development of innovative products.
Co-operative mergers continued a pace and in the 1990’s fierce competition existed between New Zealand’s leading dairy companies as each sought to grow its own market share.Around this time the dairy industry began to recognise that a single integrated company would be the best option to remain competitive in the global market.
By early 2000 there were only four dairy companies in New Zealand – two major companies, New Zealand Dairy Group and Kiwi Co-Operative Dairies, plus two smaller co-operatives.Fonterra was established as a co-operative on 16 October 2001 with the support of an overwhelming majority of New Zealand dairy farmers. These are some of the names of our foundation shareholders which we proudly display in the lobby of our Auckland head office.The name Fonterra is a combination of two Latin words: ‘Fon’ – meaning ‘fountain’ or ‘spring’ and denotes coming from water, and ‘Terra’ – meaning ‘earth’ or ‘land’ and denotes originating from the soil.
This is one of our NZ farmer shareholders and it on the farm this is where the journey starts.. Every one of our farmer shareholders has a sign like this at their gate saying that “It Starts Here”The events of the past few years have really tested the wisdom of our farmers’ choice to create Fonterra.The global financial crisis has tested our mettle as much as any of the regular recessions that have blown through the dairy industry since the year dot.And just as it has always been, it is our commitment to live and die by the global market that has enabled us to repay our farmers’ trust. Where other organizations struggled through the global financial crisis and came through considerably weakened, Fonterra surged strongly ahead and came through significantly healthier. In fact, our balance sheet is the strongest in our history.
Today Fonterra stands on the shoulders of giants. Those farmers who had the vision to create small dairy co-operatives to control their destiny – they were the first to hop on a boat and test the waters in foreign markets. Today we close the door on a container load of high quality dairy produce every three minutes. Due to the accidents of population and geography, and Britain cutting the apron strings, we became the only dairy country in the world that was forced to go global. Something we were forced to do, has now become our competitive advantage. To the world’s leading food companies, we can say; “we can supply your dairy needs in all the tricky markets”. It’s very hard to replicate. You could view it as a challenge or an opportunity, and we made it an opportunity. It’s helped us stay low cost, made us far more efficient. During the global dairy price dip of 2008/09, US farmers went to their Government screaming for help. So did the Europeans. Our farmers put on a little less fertiliser and hunkered down for the economic winter to pass – that is the New Zealand way and the reason we will ultimately win.Every one of these achievements, since Samuel Marsden brought the first cows to New Zealand 198 years ago has been made because people with an absolute passion for dairy made bold calls and backed themselves to develop a world leading dairyco-operative. Thank you.
Fonterra Group, James McVitty IYC Regional Conference PPT Slides
Co-operating to build New Zealand’s Largest EnterpriseJames McVitty – VP for Government and Industry Relations , Fonterra Co-operative Group Ltd IYC Regional Conference – 3 October 2012
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Introduction to the New Zealand dairy industry• 4.5 million cows and people• Long history of exporting milk products• Grass-based milk production• Temperate climate• World-leading quality of milk• No Government Subsidies• Over 95% of milk is processed by co-operatives Page 3 Confidential to Fonterra Co-operative Group
Fonterra today • 89% of New Zealand milk supply • 25% of New Zealand’s exports • Co-operative owned by 10,500 farmer shareholder members • Processes 17 billion litres of milk in NZ plus 5 billion litres elsewhere • Dairy ingredients supplied to more than 100 countries • USD 16 billion in revenue • 16,000 staff globally Page 4 Confidential to Fonterra Co-operative Group
Fonterra is guided by the Co-operative Spirit Put the whole of Fonterra before its parts Pitch in; volunteer my knowledge, capability and networks Form lasting partnerships Promote our reputation and honour our heritage Honour what’s important to local communities Page 5 Confidential to Fonterra Co-operative Group
Looking back Page 6 Confidential to Fonterra Co-operative Group
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Dairy expertise from grass-to-glass On farm Lab and technical Origin sites Origin stores Origin ports Major customers Millions of consumers Global freight Destination ports and stores Page 1515 Confidential to Fonterra Co-operative Group
It starts here… Page 16 Confidential to Fonterra Co-operative Group
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Thank you! Page 18Confidential to Fonterra Co-operative Group