Bite: Fonterra is out of your fridge and betting on B2B

Fonterra CFO Andrew Murray breaks down the co-op’s new focus on ingredients and food service—and why divesting consumer brands less about retreating, and more about doubling down on value for farmers. 

How is dairy’s protein power is driving global demand? What's driving the growth of “natural nutrition” and how will Fonterra milk that opportunity?

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Episode Transcript

Speaker 1 (00:01):
You're listening to a Shasi's podcast. It does represent to
change in strategy moving more into the ingredients business and
the food service. Like, just interested in how you're sort
of articulating that and how that's been picked up. A
lot of people thought our strategy was to divest of consumer, right,
which is not the strategy. Right. The strategy has been about,
you know, it has been about us being clear about
what it is that we are as a co op

(00:22):
and then there's a co op. What we're here for
is end to end value for the farmer, and sometimes
that's about getting milk price and sometimes that's about earnings.
But actually for us, we're a co ops and we're
sort of ambivalent between the two of them. But actually
that's what we're trying to maximize. What maximizes the milk
price and the earnings that goes along with it. And

(00:45):
so our strategy is, well, then how do we do that,
how are we best place to be able to do that?
But also at the same time being clear that we
don't just play a financial role for the farmer. We
also play quite a big risk roll, and so you know,
we know we have a network of assets that that
means that we will always come and pick up the
milk and we will always pay for it on the
fifteenth of the month. And then we have a network
of assets which allows us to then turn that into

(01:07):
the most profitable setup of products. Right, we have asset
flexibility which gives us optionality. Depending on how the markets
are looking, we can choose to make different things. We
also have a whole heap of assets that we can
use so that we're not dependent on just one in
one area or any of that sort of stuff. So
that flexibility, so that does actually a lot of risk
mitigation on behalf of the farmer as well. So the

(01:28):
farmer offering is something that is super important. How do
we make sure that we are the most compelling offer.
That's what we want to make sure because you know,
our co op of scale is important to the industry,
we believe, so we look at it from that perspective.
And then the two channels that are the best return
for us is ingredients and food service and consumer. You know,
despite the fact that you know, we've had a really

(01:50):
good improvement in the performance over the past few years,
it's still less than farmers cost the capital. That's the
sort of return that we're getting on there, So it
doesn't makes sense for us to retain that business when
we have other channels that we can get a better
return in. And it's not about us saying that it's
a bad business, because it's not. It's a great business,
but we have another one that gives us better returns.

(02:13):
And so our choice is not to say, hey, do
you want a B or C. It is between between
those what is the best mix? And for us that
becomes about ingredients of food service. So ingredients, you know,
that's always I mean, it's where we make the vast
majority of our profit. It always has been. There is
so much demand there for high value ingredients, advanced proteins,
medical grade nutrition is very important now more so, and

(02:37):
people want natural nutrition. And the business that we have
within food services, you know, we have great product sets
and they have great functionality that is valued by chefs,
and that's essentially who is choosing these food service products.
Our business is quite heavily in China, and I'd love
to see us do a bit more outside of China
in that food service space. But you know, again there's

(02:58):
plenty of opportunity out there as well. So that's where
we get the best returns. We're also it's a B
to B business. It's a simpler business. We can be
more agile, and that allows us to really develop long
term partnerships with our customers. That's where we focus our innovation,
that's where we focus our resources. Is about getting good
long term relationships. That's what actually creates value. Investing involves

(03:19):
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