Federated Farmers says top management should be leaving Fonterra Cooperative Group if results don’t start improving in the next couple of years.
The comments, from Fed Farmers dairy chair Andrew Hoggard were in response to the confirmation today by the world’s largest dairy exporter that it will cut 523 jobs to save up to $60 a million a year on its payroll in the first swathe of a major review of the business.
Hoggard said he hoped the job losses were part of a wider strategy to redirect resources in new areas rather than a knee-jerk reaction to cut costs as dairy prices continue to fall.
“Fonterra has had a history of knee-jerk reactions like that where it gets rid of a whole bunch of people and then two years later hires them back again, or rather having got rid of people with institutional knowledge, they hire new graduates who can’t do as good a job,” he said.
Hoggard said farmers have invested a lot of money in Fonterra in the past decade and expected within the next two years for the decisions made by top management on where that money was invested to start paying off.
“If we don’t, you’d have to say getting rid of a lot of mid-level people were the wrong ones to go. It should be the people at the top making those decisions that pack their bags. It we don’t see some sign of improvement and those investments start to pay off in the next couple of years, then some serious calls need to be made.”
The Auckland-based company said it had completed consultation with affected staff in its central procurement, finance, information services, human resources, strategy, and legal teams, and they will leave in September. The redundancies will incur a one-off cost of between $12 million and $15 million.
Fonterra chief executive Theo Spierings said the news had been unsettling but the cooperative had to change if it was to remain strongly competitive in today’s global dairy market.
“Reducing the number of roles in our business isn’t about individual competency; it’s about continually improving the way we deliver performance,” he said.
Fonterra has more than 18,500 staff globally and 11,500 in New Zealand. The job losses will be across Fonterra’s global operations, with the bulk of the cuts at its finance and procurement hubs in New Zealand, Singapore and Australia. The company declined to break down the staff reduction by unit.
Consultation will begin on Aug. 5 with staff in the rest of the business including administration, sales, consumer, marketing, research and development, communications, health and safety, food safety and quality, group resilience and risk, property, procurement and change management.
Fonterra wouldn’t reveal how many further job cuts are expected and Spierings was travelling and unavailable to be interviewed.
Newly-elected Fonterra Shareholders’ Council chairman Duncan Coull said Spierings and his team were employed to make decisions that were sometimes difficult.
“The focus at this time needs to be on ensuring that our affected staff receive all the support they require,” he said.
Spierings revealed in June that the major review of the business would lead to hundreds of its staff being laid off as it redirected funds into sales and marketing roles to drive up returns.
The review, undertaken by an internal management team and business management consultancy McKinsey & Co, was started in December when it became clear the global dairy market wasn’t recovering as quickly as hoped.
The job losses come as world dairy prices continue to sink with prices in the latest GlobalDairyTrade auction falling 10.7 percent to US$2,082, the lowest level since July 2009.
Units in the Fonterra Shareholders’ Fund fell 1.1 percent to $4.72, and hav