WELLINGTON, New Zealand—New Zealand farming giant Fonterra said Friday that it plans to slash around US$598 million in costs over the next seven years following a fall in global dairy prices.
Chief executive Miles Hurrell foreshadowed future job cuts, saying the “focus on efficiencies will have implications for staff numbers”.
But he gave no further details about how many of Fonterra’s 20,000-strong workforce may be cut.
With around 9,000 farmer-shareholders, Fonterra is one of the world’s largest dairy exporters, producing 16 billion liters of milk per year, exporting to more than 140 countries.
Dairy was New Zealand’s biggest export commodity last year with milk powder, butter and cheese accounting for 28 percent of total exports, worth US$12.3 billion, according to Stats NZ.
However, dairy prices fell sharply last month, led by a 10.9 percent drop in the cost of whole milk powder.
Fonterra has twice cut its forecast for milk pricing in recent weeks, increasing pressure on its farmers, which Hurrell said “made the outlook for the year even more challenging”.
The Fonterra boss said a reduction in demand for imported whole milk powder from China, one of the dairy producer’s three regional markets, has been a key driver of falling prices.
“Strong domestic milk supply growth in China has been propelled by high raw milk prices over the past few years,” Hurrell said.
“More recently, China’s extended Covid-19 lockdown has reduced consumer demand for fresh milk products and this demand has not yet recovered to the previously forecast levels.”
There are signs that China’s domestic milk production is balancing out, he said.
“As these changes on the supply side play out, indications are demand for New Zealand product could start to return over calendar year 2024.”
This coincides with the remaining tariffs on New Zealand dairy products being removed from January 2024 as part of the NZ-China Free Trade Agreement, Hurrell added.
While Fonterra has a strong balance sheet, Hurrell warned that, looking out to 2030, “achieving our long-term targets depends on rigorous focus” as to where they allocate milk investment.
“We also know this means reducing our costs to assist us to hit our short-term and long-term targets,” he added.
Hurrell said Fonterra plans to “streamline how we operate” through operational efficiencies, reducing cash costs across the business and the digitization of processes.