Six years after predicting a 140 percent increase in demand for its organic milk sales, dairy giant Fonterra is gutting the business by slashing numbers of supplier farmers across the North Island by about half.
Fonterra is meeting its organic farmers this week to tell them how it is restructuring "to bring the loss making business into a break-even situation", group director supplier and external relations Kelvin Wickham said.
"The co-operative remains committed to the organics market but as growth in this market has significantly slowed since the global financial crisis," he said in a statement.
"The organics market was hit hard by the global financial crisis and market indications are it will not recover to previous levels."
Some packaged dairy foods were selling at prices and volumes below 2008 levels -- a year of record dairy prices -- and consumers were now less willing to pay a premium for organic products.
Fonterra entered the organic market with its first production of New Zealand-made organically certified cheese and milkpowders in 2002.
The cutback came six years after Fonterra's organic global category manager Rick Carmont said the cooperative expected its organic business -- selling the milk from 20,000 cows certified as organic livestock -- to surge by 140 percent over the next five years on the back of burgeoning global demand for organic dairy ingredients used in cheese, milkpowder, proteins and butter.
"Dairy is the fastest-growing category in the international organic market, and having seen 60 percent growth over the past two years we are well placed to build on this," Mr Carmont said in 2005. At the time, Fonterra had 31 organic farmers and wanted to boost that to 200 to satisfy overseas markets, recruiting about 40 a year.
Some industry forecasts said that eventually over a million litres of organic milk would be collected at the peak of the season from 260 farms in Waikato and Bay of Plenty to supply its accredited manufacturing sites at Hautapu, Waitoa and Morrinsville.
Today Mr Wickham said the company was "concentrating" its North Island organic suppliers in one hub around Hautapu, near Cambridge.
"This will reduce the number of Fonterra's organic suppliers," he said.
Another spokesman said it had about 100 farmers producing milk certified as organic.
It was also cutting back the amount of product processed at Waitoa and Morrinsville, and "prioritising" the organic product range to focus on cheese, which provided the best returns.
It would also focusing on emerging Asian and Australasian organics markets "where there are stronger returns and growth potential," although Mr Carmont pointed out in his original outline of the business that Fonterra was the only organics dairy supplier to meet the government standards for all 71 major organic markets around the world: "so we are in a leading position".
Mr Wickham said getting rid of outlying organic farmers would cut costs in both transport and manufacturing, and having most of the product go to one factory "will mean we are able to create efficiencies of scale in processing the milk".
"The decision to reduce our organics operation was not taken lightly but we need to get the business back into a break-even situation," he said.
Fonterra would work with farmers cut from the organics programme as their supply contracts expired.
"In order to stay in organics, we have to recognise that the global market for organics has changed," said Mr Wickham.
