Fonterra to cut jobs as global dairy prices continue to fall
As demand for infant formula and other dairy products has slowed in China and other countries, earnings at the world’s largest dairy exporter have taken a hit, hindering its efforts to expand into value-added and branded products.
“We recognise the need to re-set our business accordingly — what worked in the past doesn’t necessarily work now,” said CEO Theo Spierings in a statement.
“We are turning over every stone and pressure-testing everything. This includes our current staff numbers and how we line up to drive cash back to our farmers.”
The company did not specify how many jobs would be cut. The planned redundancies are part of a company-wide review of the farmer-owned co-operative, the results of which Spierings said would be announced in coming months.
Having dominated the commodity milk powder sector for years, the co-op is aiming to deliver more food services and specialised ingredients in China, its biggest market, and in other emerging countries where it expects that the demand for dairy products will grow.
Fonterra’s profits have been falling for nearly two years in the face of volatile dairy prices, which have slumped to their lowest level in nearly six years after soaring to record highs in 2014.
Spierings told Reuters last month that he expected only a slight pick-up in global dairy prices over the next year, adding that the co-op planned to slow spending on expansion if demand remained sluggish.
Meanwhile, within the past week, global dairy prices fell to their lowest in nearly six years as an ongoing lull in demand from big buyers in China and other emerging countries weighed on milk powder prices, while prices for butter dropped.
The benchmark GlobalDairy Trade Index (GDT) fell 4.3% at the latest fortnightly auctions held by Fonterra, taking average selling prices to $2,412 per tonne, their lowest since August 2009.
The sixth consecutive fall was led by a 3.1% slide in prices for whole milk powder to a six-month low of $2,309 per tonne, wiping out gains made earlier in the year to hit levels that are less than half that of $5,245, a lifetime high hit in April 2013.
“Prices for whole milk powder ... are back to start of year troughs and there is a large hole to climb out of,” ANZ analysts said in a note.
Whole milk powder accounts for the bulk of product sold at the auctions.
Butter prices fell 10%, while SMP fell 1.3% to $1,982. Prices eased for most products, while the number of bidders fell even as offered volumes rose. The GDT index is down around 38% since the start of 2014.
Fonterra cut its farmgate price forecast for the year ended May to NZ$4.40 ($3.16) per kilograms milk solids, its lowest in eight years.
