Fonterra is banking on a diverse product mix and a more open relationship with farmers to help it grow in Australia.
But it has warned that farmgate price volatility will continue.
And its suppliers say they are looking for better prices to give them confidence to invest.
The opening of the company’s new cheese plant at Stanhope on Friday, which gave it the capacity to produce 100,000 metric tonnes of cheese in Australia, meant “we have a better proposition for milk price”, the company’s Australian managing director René Dedoncker said.
Fonterra stepped up its price to $5.50 at the end of July once it knew it had the milk secured to support cheese production at Stanhope, he said.
Long-time suppliers to the Stanhope plant, John and Jo McCready, who milk 400 cows at Waranga Shores, said the $140 million investment in the new plant was good but it would mean little unless there was a return to dairyfarmers from it.
Mr McCready said he wanted to see more stable pricing.
"The peaks are very short and the troughs are very deep," he said.
It was great knowing a company was spending money in the region but the milk price needed to increase if the company wanted to ensure it would have sufficient milk to generate a return, Mr McCready said.
Listen to what Fonterra chair John Wilson had to say here
Fonterra’s regional manager milk supply Chris Potts, who was tasked with locking in the extra supply for the Stanhope plant, said price had been an important part of the conversations he had with prospective suppliers.
“They are really wanting to understand the market,” he said.
“Price indicators are important, that's why we went with forecast closing price.”
Farmers were looking for a price with six in front of it to give them more confidence.
Mr Potts said the Stanhope plant had taken on 50 extra farms since May, with most moving from Murray Goulburn, helping it to meet the 50 per cent increased capacity at the plant.
It was also supporting existing farmers to grow but “only if it was profitable for them to do so”.
Fonterra chair John Wilson said the company’s cheese, whey and nutritionals strategy, based in Australia, “is critical to the growth and drive in demand that is required from an increasingly demanding consumer base globally”.
"Global dairy demand is very strong, it is driven by the demand for high-quality nutrition, particularly into developing markets,” he said.
"But dairying is a very volatile.
“World prices move very, very quickly when supply and demand is relatively balanced, and it doesn't take much to create significant uncertainty in the dairy climate.
“Recently I've been with farmers in Europe, the US, South America, and home in New Zealand and here in Australia, and every single one of those farmers has had to deal with extreme volatility and have had to adapt their businesses to do so.
"The challenge for us and the challenge that we take on very strongly is to continue to build innovative plants like we've got behind us, putting more and more product into food service, consumer and sophisticated ingredients to ensure we can deliver the best prices to our farmers.
but ultimately I need to say prices will be volatile.”
Mr Wilson said he was looking forward to working with Mr Dedoncker and Bonlac Supply Company chair Tony Marwood “as we look to refashion, redesign, reshape the relationship with what was BSC supplier co-operative and look to how we can grow that alongside how we grow the business here in Australia".
Mr Dedoncker said Fonterra had completely turned around its approach to Australian farmers in the past 12 months.
“We're interested in making sure we're doing the right thing for farmers and to do that we need to make sure we honour the right pricing and that we can speak openly and transparently to them and in the last 12 months that's what we've done,” he said.
“We knew we had to behave differently.
“I think farmers are attracted to that as much as they are to the prices that we offer.”
Mr Dedoncker said the key driver for Fonterra in the Australian market was that it was “a really diversified business”.
It offered a diverse portfolio of productions into three distinct channels - retail, food service and ingredients.
“If you are focused on one product only with one trade channel only, you have a real risk in your business system,” he said.
“We have three massive channels that we can send product through and we have at least four different product categories.”
Mr Dedoncker said Fonterra no longer planned to follow the largest processor, Murray Goulburn, in setting its prices.
He said the relationship with BSC in the past had not had a lot of tension in it because Fonterra followed MG.
“That's all very different now; there is tension in the room, and it’s good tension,” he said.
“You want to be constructive and you want to be challenged on the decisions you are making.”
He said Fonterra had no ambition to be the biggest processor in Australia.
“Our ambition is to stick to our strategy,” he said.
“We are really good at cheese and that's why we've built this factory and that means we've got more milk.
“So the outcome could be that we are number one but that's not my ambition; that will simply be what it will be.”
Listen to Rene Dedoncker's press conference here
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