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Fonterra Must Address Farmer's Concerns

27 August 2002

Fonterra Must Address Farmer's Concerns

The Shareholders Council Annual Report has identified several major areas of concern within Fonterra that need to be addressed promptly, says Dairy Farmers of New Zealand Chairman Kevin Wooding.

"Farmers were promised improved transparency and it is very disappointing that the Council has noted that it was difficult to obtain information from Fonterra," said Mr Wooding.

"Farmers should be asking what Fonterra's plans are to improve transparency and accountability in their reporting.

"Fonterra's performance has resulted in an Actual Milk Return that was 39c below the Commodity Milk Price, which equates to $432m. Given this represents almost 10% of farmer's returns this year farmers should be questioning how Fonterra would improve efficiencies.

"Fonterra's corporate overhead costs are $64 million over budget and the excessive use of capital has resulted in interest bearing debt being $903 million over the expected value in the Business Case. Farmers will be questioning whether similar excesses are occurring throughout the business.

"One of the perceived merger benefits was more efficient use of capital. Farmers have a right to question why this benefit has not occurred to date and what steps Fonterra will take to improve revenue and reduce overhead costs and working capital.

"Farmers are frustrated with recent milk collection problems. The Council has noted that there is in excess of 3,500 late off-farm milk collections in the month of October 2001 alone. The target was 100. Farmers will definitely be asking for significant improvements in this area.

"Processing problems resulted in product downgrades that were 78% over budget. With the significant investment in modern plant equipment farmers will be questioning why there are quality problems during processing.

"Farmers need to know when Fonterra is going to address these issues and what corrective processes will be put in place to minimise future problems."


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