Fonterra woes point to bigger problems

Today Fonterra announced what by all accounts are major job losses. 523 in all and said that it hopes the staff redundancies will save up to N.Z.$60 million per year. As big as the job losses are, we should not be wholly surprised that Fonterra has made the cuts, for a number of causes that individually might be manageable, but combined present challenges that the farming community should not be expected to withstand the brunt of on its own.

The job losses come after two seasons of misery heaped upon misery for farmers. In 2014-14 there has been two major droughts, which have forced farmers to reduce their stock to a bare minimum. Some farms in north Canterbury for example have only just started seeing meaningful precipitation this year. I know farmers up there who have sold much of their stock and are having to spend huge amounts buying feed for the rest, because of a lack of being able to make hay or other fodder.

The drought has coupled with other facts such as the easing of demand for dairy products overseas as other economies begin to slow or develop their own dairy industries. This has been shown by the falling price per kilogram of product. The glut has been caused by the expansion of dairying in other countries such as the United States, but also slowing economies in Europe, that are struggling to shake off the shadow of the Global Financial Crisis of 2007-2009.

Finally it is worth noting that a prolonged failure by successive Governments to invest in the rural regions of New Zealand is starting to exact a nasty toll. Many towns which might have been thriving 35 years ago, have witnessed a loss in services provided by both the public and private sector such as service jobs, logistics and industrial employment opportunities. Despite the three yearly election year ra-ra about reviving the rural sector, successive National and Labour led Governments have failed to match words with actions. The loss of railways has been damaging because the additional work in the local economy that having a railway yard could provide from enabling large bulk to be moved without further congesting roads has dried up.

Am I surprised that this is happening? Not really. It is sad for the people who will be laid off and it raises questions about Fonterra’s health, but Fonterra did not get to this stage by bumbling its way through the last decade – its leadership knows how it got there and why these problems exist. But will they take responsibility for their role?

Your guess is as good as mine.

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