Richie and me: the men to rescue Fonterra
Ihave several brilliant ideas on how to fix the woes of Fonterra. New Zealand’s poster-boy company posted the first annual loss in its 17-year history this week, to much tearing out of hair and ripping of dairy overalls.
The company makes about $20 billion a year but, this financial year, instead of posting a big fat creamy profit, it has recorded a $196 million loss.
I feel partly responsible, and that is why I’ve taken it upon myself to find answers. In fact, I feel so responsible I’m stepping up to offer myself for the job nobody apparently wants. Chief executive of Fonterra. Many have been approached. None are interested.
It’s a poisoned jug, to be sure, but I am not one to shy away from duty. My sense of responsibility for the historic loss lies in the fact that Fonterra’s former chief executive, Theo Spierings, who is Dutch, is said to be the cause of the failure.
As someone who was born here but clearly of Dutch heritage, I feel I have to put things right. Spierings’ failure reflects badly on anyone of Dutch heritage, and those of us so implicated are obliged to fix things.
Before I outline my brilliant plan to get Fonterra out of the effluent pond, let’s just remember that Spierings oversaw the highest ever milk price of $8.40 in 2014. He also made sure struggling farmers got interest-free loans and helped Fonterra become the leading dairy company in China.
Fonterra-owned Anchor became the top consumer dairy brand in China and more than 140,000 New Zealand schoolchildren got a free serving of milk every day.
Take away the writedown on the failed $750m investment in the disastrously managed Beingmate operation, based south of Shanghai, and the one-off $183m payout to French food giant Danone over a false botulism scare in 2013, and Spierings doesn’t look so bad.
There appear to be four major problems with Fonterra that I need to address.
First up, its 6000-odd staff are all paid too much. This is perhaps the easiest problem to fix. My first action as chief executive will be to halve everyone’s pay. That includes me, which means I will be paid only about $1.3m in salary and benefits a year. That’s only $25,000 a week and, don’t forget, I lose about a third on tax. It’s hardly worth my while but, like I say, I’m prepared to take one for the team.
The next problem is Fonterra’s management doesn’t have a very warm, cuddly image. Spierings didn’t have a lot of time for the media and was therefore regarded as aloof and arrogant.
Again this is not hard to fix. I will hire Richie McCaw to be Fonterra’s spokesman on all matters, including disappointing payouts and profits. McCaw won’t even have to give up his day job. We will just wheel him out as required. No farmer or rural commentator will want to be seen to criticise McCaw if they want to drink peacefully in the local pub, so that should mute a lot of criticism.
The next problem is the continual haemorrhage of money in China through things like joint ventures. The way to fix this is simply to have no more joint ventures or investments in China. We will provide the Chinese with our premium product at a good price and that will be it. Problem solved. We sell, China buys.
Then comes the biggie. My experts tell me the model on which Fonterra works is plain wrong. In a nutshell, it buys milk from its owner-farmers and turns a lot of it into branded products which it then sells around the world. But if the farmers get a big price for their milk, the margin Fonterra earns on the downstream products is lower and the products, like frozen yoghurt and pizza cheese, don’t sell as well.
Farmers then moan that the payout on the shares they have in Fonterra is pathetic. Again this is not insurmountable and many experts have already pointed out the fix. You separate the two divisions so one buys the milk from the farmers and sells it to the other business, which makes the valueadded products and markets them. Then you sell one business to the highest bidder, which is going to make the books look much better.
How this is going to work is a little unclear but that is where I earn my big bucks. Needless to say, New Zealand is full of experts to help me.
Anyway, thanks to my costcutting and the sale of one part of the business, every farmer will get an amazing payout and their shares will earn a healthy dividend and experience a solid increase in value. And I will get my amazing performance bonus.
I’m not sure what will happen after my three years is up. If Fonterra starts to tank, perhaps because of my short-term problemsolving strategy, well, that is Richie’s problem. And I will be having a well-earned rest somewhere abroad.
I will be paid only about $1.3m a year. It’s hardly worth my while but, like I say, I’m prepared to take one for the team.