Fonterra scales back unprofitable organic dairy operations as demand wanes
Aug. 22 (BusinessDesk) – Fonterra Cooperative Group, the world’s biggest processor of milk, plans to scale back its unprofitable organic dairy operations amid waning public appetite to pay a premium for such products.
The Auckland-based cooperative plans to concentrate most of its North Island organic suppliers around its Hautapu processing plant, which will have the effect of reducing the number of suppliers. Its two other certified organic plants at Waitoa and Morrinsville will reduce the amount of product they process.
At the same time, Fonterra will focus its organic range on cheese, which offer the highest margin, and focus on sales to Asia and Australia, where there are “stronger returns and growth potential.”
“We understand the big commitment many of our farmers have made to the organics programme and that this transition will not be an easy one to make,” said group director supplier and external relations Kelvin Wickham.
“We will honour all of our organic contracts through to their formal termination dates, which in some cases are four-five years away and we will work with our farmers as they make the transition out of the organics programme,” he said in a statement.
Fonterra “remains committed” to the organics market “but as growth in this market has significantly slowed since the global financial crisis, Fonterra needs to make changes to its organic operations,” Wickham said. Still, the organics market was “hit hard by the global financial crisis and market indications are it will not recover to previous levels.”
Prices and volumes for packaged organic dairy foods are still below 2008 levels, Fonterra said.
Consumers are more confident that non-organic products are now produced more sustainably, reducing the pressure to buy organic.