‘This is food — not Louis Vuitton handbags’
Fraser Whineray, who became Fonterra COO just as Covid crisis engulfed NZ, tells Madison Reidy how global shipping gridlock sorely tested the dairy giant’s resilience and why it doesn’t fear recession
The business-attentive will know about Air New Zealand chief executive Greg Foran’s horror first days in the role as Covid-19 caused the airline to ground flights out of China, but he wasn’t the only executive thrown into a baptism of fire.
Fraser Whineray was called in to Fonterra earlier than his start date to manage a crisis unfolding across its supply chain spanning 130 countries and accounting for 25 per cent of New Zealand’s total exports.
The former chief executive of renewable power company Mercury had barely got his gumboots under the desk before he was ensuring $55 million worth of milk a day didn’t go down the drain.
“Ninety-nine per cent of our sales are actually exports, if we don’t put it on the ships at a rate of around $55 million dollars a day, we can’t invoice, if we don’t invoice, we don’t collect cash and eventually we’ll run out of balance sheet or places to store products. So, the thing has to run like a metronome.”
His role as chief operating officer (COO) for the dairy co-operative began the week after New Zealand upgraded from level 2 to level 4 restrictions in 2020.
“I was actually quite pleased I started a couple of days after that because that week when it actually went from [level] 2 to 4, must have been pretty intense,” he quips.
But the job was no joke and he recalls the “incident management” process in excruciating detail, from understanding international staff’s living arrangements during lockdown to accessing vaccines for staff where governments did not supply them.
“It was fairly volatile out there.” The situation put global supply chains under the largest amount of stress endured on record, according to the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index (GSCPI), making the new logistics gig a tough one for Whineray.
“[It was] like you’d see on the M25, where a traffic jam goes around it for three days because someone touched their brake,” Whineray explained.
“So to unlock that took some time. Like a physio digging right into that knot — and it wasn’t that comfortable.”
Whineray said milk kept moving thanks to its strong partnerships and systems, specifically Kotahi, the shipping logistics company it set up with Silver Fern Farms following the global financial crisis. Its IT system suffered though, and changes were being made.
“When the shipping gets disrupted, you really start to see the amount of rework you have to do. We probably had to put a lot more personal effort into it.”
That effort was not lost on him. Whineray stressed the weight his thennew colleagues carried to keep one of the country’s biggest export operations churning.
“A lot of shoulders supported that to make sure that we were continuous with our business for the benefit of our customers who we didn’t want to give an excuse to go, ‘Hmm, maybe they’re not such a reliable supplier, we’ll diversify away from New Zealand’. We didn’t want that to happen.”
Resilience to recession
Fonterra’s resilience could be tested again if global demand for milk soured in a recession or milk prices dropped, but Whineray was confident its liquid commodity could cope.
“There will be a bit of economic uncertainty as stimulus comes off, plus then you get a recession . . . but this is food, not Louis Vuitton handbags, so I think we’re in a reasonably resilient space.”
While he was not an economist, Whineray predicted global growth would slow.
“I think, certainly where it has been in terms of growth, it will be much lower and we’re already seeing that in major economies like China.”
He had already witnessed premium milk suppliers pull back because of inflated costs for energy and grain feed. Luckily, Fonterra cows were grass-fed, and the lower global supply had pushed up milk prices, which contributed to Fonterra’s historically high payout to farmers and its earnings upgrade late last year.
“We’re only a small player in the global dairy market and we really want to nail the bits where we have a core advantage and things like being grass-fed, and being able to supply consistently all year round, and deal with supply chain shocks, which we’ve shown resilience through. That’s what our customers are after.”
While headwinds could be coming for some Western markets, the tailwind of China’s reopening could offset them.
Whineray expected demand for Fonterra dairy products to continue to grow amid the core middle-class consumers.
However, the mix of products it sold the world would likely change as its strategy switched to prioritise value over volume.
“That’s absolutely what we’ve been looking to do for some time but I think the real burning platform for that comes on when you actually do have declining milk and you do assume that in your future, as opposed to assuming it will be continually increasing.”
Lower milk collection volumes had arisen because more dairy farmers were switching to other land use, such as growing kiwifruit or hops.
“That is a tremendous opportunity for the co-op, when for the last century we’ve been having to find new homes for growing milk, now with slightly declining milk we’ve got better choices and I think that’s going to be a really exciting future.”
When asked why diminishing product would be viewed positively, Whineray explained that it freed up capital, previously absorbed by costs to store milk and sell it overseas.
“When you actually get a slight decline . . . you can allocate your capital elsewhere or even return it to shareholders.”
That capital was being used to get more out of milk, with a focus on extracting nutrients to put into products like probiotics, and creating new products tailored to varying international tastebuds, which a Kiwi palate would probably not enjoy.
“Some of them are quite strange concoctions they come up with.”
On the front foot
With shipping rates normalising and the darkest days of the pandemic in the past, the logistics boss could finally focus on the job he signed up to.
“I think starting from January this year we’re a lot more on the front foot than we have been for a bit.”
The co-operative was lighter after offloading assets that were not directly tied to New Zealand milk products, such as its cash-hungry China Farms, Tip-Top ice cream business and most recently a joint venture in Chile — all part of the “reset” strategy implemented by chief executive Miles Hurrell.
Sustainability was being “dialled up” too, to meet consumer expectations globally, Whineray said.
“We’re putting a lot into sustainability at the moment — wastewater treatment plants to get it almost to fresh water and also the boiler conversions we’re doing for decarbonisation.”
That was important to Whineray. During his tenure at Mercury, he hammered home the opportunity for electric vehicles (EVs), notably at its 2014 annual shareholder meeting.
He transitioned 70 per cent of Mercury’s vehicle fleet to electric in 2017 and signed the company up to the EV100 global movement, making it one of the first New Zealand firms to do so.
Although he’s left that job, Whineray said his passion for EVs had not left him. He owned two of them — a Mitsubishi Outlander and a Hyundai Kona. Hopefully he’ll be driving them to a less stressful job this year.