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UPDATE2: Fonterra top brass on notice from farmers as 523 jo

UPDATE2: Fonterra top brass on notice from farmers as 523 jobs go in shake-up

(Recasts, adds Fonterra comment, updates share price)

By Fiona Rotherham

July 16 (BusinessDesk) - Federated Farmers says top management should be leaving Fonterra Cooperative Group if results don't start improving in the next couple of years.

The comments, from Fed Farmers dairy chair Andrew Hoggard, were in response to the confirmation today by the world’s largest dairy exporter that it will cut 523 jobs to save up to $60 a million a year on its payroll in the first swathe of a major review of the business. Hoggard said he hoped the job losses were part of a wider strategy to redirect resources in new areas rather than a knee-jerk reaction to cut costs as dairy prices continue to fall.

“Fonterra has had a history of knee-jerk reactions like that where it gets rid of a whole bunch of people and then two years later hires them back again, or rather having got rid of people with institutional knowledge, they hire new graduates who can’t do as good a job,” he said.

But Fonterra’s group director of cooperative affairs Miles Hurrell denied the job cuts were a knee-jerk reaction and were signalled as early as March.

“That was the first announcement and clearly we’ve seen the market retract since then,” he said.”It’s important to note while we’re talking staff cuts today, the programme is wider than head count reductions and covers the end-to-end of the business and what is needed to generate more value for shareholders.”

Fed Farmers' Hoggard said farmers have invested a lot of money in Fonterra in the past decade and expected within the next two years for the decisions made by top management on where that money was invested to start paying off.

“If we don’t, you’d have to say getting rid of a lot of mid-level people were the wrong ones to go. It should be the people at the top making those decisions that pack their bags. It we don’t see some sign of improvement and those investments start to pay off in the next couple of years, then some serious calls need to be made.”

The Auckland-based company said it had completed consultation with affected staff and they will leave in September. The redundancies will incur a one-off cost of between $12 million and $15 million. Hurrell said while the job cuts are global, most of the affected staff are in New Zealand and mainly in the human resources, finance and information systems. Fonterra has more than 18,500 staff globally and 11,500 in New Zealand. The company declined to break down the staff reduction by unit.

Consultation will begin on Aug. 5 with staff in the rest of the business including administration, sales, consumer, marketing, research and development, communications, health and safety, food safety and quality, group resilience and risk, property, procurement and change management.

Fonterra wouldn’t reveal how many further job cuts are expected.

Hurrell said there was no freeze on hiring in the interim but they were being careful that any new hires are in areas where they want to drive harder and that the roles can’t be offered to those losing their existing positions.

Newly-elected Fonterra Shareholders’ Council chairman Duncan Coull said Spierings and his team were employed to make decisions that were sometimes difficult.

“The focus at this time needs to be on ensuring that our affected staff receive all the support they require,” he said.

Spierings revealed in June that the major review of the business would lead to hundreds of its staff being laid off as it redirected funds into sales and marketing roles to drive up returns.

The review, undertaken by an internal management team and business management consultancy McKinsey & Co, was started in December when it became clear the global dairy market wasn’t recovering as quickly as hoped.

The job losses come as world dairy prices continue to sink with prices in the latest GlobalDairyTrade auction falling 10.7 percent to US$2,082, the lowest level since July 2009.

Units in the Fonterra Shareholders' Fund fell 1.5 percent to $4.70, and have declined 21 percent this year.


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