Fonterra lost market share in the South Island in 2014/5 and will probably lose more in the current season before there is an improvement in 2016/17, Fonterra chief executive Theo Spierings says.
The Minister for Primary Industries Nathan Guy said in August that Fonterra's market share in the South Island had slipped beneath the 80 per cent threshold specified in Fonterra's enabling legislation.
In the 2014/15 season, independent dairy processors collected 22 per cent of all milksolids in the South Island and 9 per cent in the North.
Last December, Fonterra moved to shore up its supply base by forming a subsidiary -- mymilk -- to take in more milk without suppliers having to buy shares in the co-operative.
Mymilk initially targeted farmers in the high-growth provinces of Southland, Otago and Canterbury.
Under mymilk, farmers are invited to apply for one-year contracts, renewable for a maximum of five years, without the obligation to buy shares.
Conditions have become more competitive, particularly in the south of the South Island, and Fonterra is keen on regaining market share because every additional kilogram of milksolids generates improved cost synergies for its big South Island plants.
Fonterra's Farmsource initiative is a technical and financial support package aimed at the major dairying regions throughout the country.
"We definitely want to stop market share loss," Spierings said. Under mymilk, there is a two year delay from between signing up to the deal and delivering the milk.
"We still expect a drop (in market share) in this financial year," Spierings said. "We are doing good work. We are getting market share back, but that milk will only come in in 2017," he said.
While market share loss was a concern, Spierings pointed out the co-op was taking in 24 per cent more milk than it was four or five years ago.
"Yes, the market share is lower, but a 24 per cent increase is a lot of milk," he said. "But it's definitely an issue on my radar," he said. "That's why we launched mymilk and that's why we are much more active around Farmsource to really attract and retain farmers."
Monitoring of the amount collected by independent processors is required under the Dairy Industry Restructuring Act, which allowed Fonterra to become established in 2001.
The act also contains provisions to promote the efficient operation of dairy markets in New Zealand through contestability in the farm gate and factory gate markets.
The Commerce Commission will provide a report on the state of competition in the New Zealand dairy industry to the Government early next year.
- Jamie Gray, NZME News Service business reporter
