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World's biggest dairy firm slashes organic production
Last Updated(Beijing Time):2011-08-22 14:20

The world's biggest dairy manufacturer Monday announced it was cutting back its loss-making organic produce operations and focusing on emerging Asian and Pacific markets in a controversial move that critics say undermines New Zealand's clean and green reputation.

Fonterra's group director supplier and external relations Kelvin Wickham said the New Zealand-based, farmer-owned co- operative remained committed to the organics market, but growth in the market had significantly slowed since the global financial crisis.

Fonterra, best known for its Anchor brand of products, would meet with its organic farmers this week to discuss a plan bring the business into a break-even situation, he said.

The plan included halving the number of organic suppliers in the North Island and concentrating them in the Waikato and Bay of Plenty regions, and reducing the amount of organic product processed at two of Fonterra's three certified organic sites.

Wickham said the organic product range would focus on cheese, which provided the best returns, and on emerging Asian and Australian organics markets, where the returns and growth potential were stronger.

He said the reforms would bring "efficiencies of scale in processing the milk."

"We understand the big commitment many of our farmers have made to the organics program and that this transition will not be an easy one to make. 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.

The organics market had been hit hard by the global financial crisis and market indications showed it would not recover to previous levels.

"All categories felt the effects, but particularly the category in which we sell packaged dairy foods where prices and volumes are still below 2008 levels," he said.

"Research shows people are now less willing to pay the premium for organic products. In addition, consumers are gaining more confidence that everyday products are being produced more sustainably and are more acceptable so they no longer see the need to pay the premium for most organic products."

Wickham said Fonterra's organics business would continue to make losses with it current structure.

"In order to stay in organics, we have to recognize that the global market for organics has changed."

Gray Beagley, organic spokesman for the New Zealand farmers organization, Federated Farmers Dairy, said the Fonterra announcement was "a bolt from the blue."

"We need to ask how hard Fonterra has worked to develop new markets locally and internationally," said Beagley.

"Only last year, Fonterra said publicly that the only way for organics was up even in the current economic climate."

Willy Leferink, Federated Farmers Dairy chairperson, said the Fonterra move was "a sobering international assessment of global organic demand."

"Consumers are seemingly unwilling to pay an organic premium," said Leferink.

"It also warns those who believe a niche should become an industry-wide template. Niches are niches for good reason."

Fonterra chairman Simon Couper said he understood the economic realities behind the decision, but that would be little comfort to those affected by the decision.

"From a business point of view organics is no longer an efficient market, in fact it loses money," said Couper. "We understand that for many of our organic farmers it is not solely about money - they have made a significant commitment with regard to both time and effort to convert."

Fonterra's move would "cripple New Zealand's organic dairy sector," the opposition Green Party said.

"Organic dairy is the future of dairy in New Zealand and Fonterra are actively putting off this transition," said Green Party agriculture spokesperson Kevin Hague.

"It will also raise the price and limit availability for consumers who want organic dairy products.

"Organics give New Zealand dairy a competitive advantage for value-added products. Fonterra should be supporting farmers who have, and who wish to, convert to organic farming."

Hague said that given the poor state of New Zealand's waterways, conversion to organic farming was an easy way to cut nitrate pollution.

"The whole industry needs to clean up its practices because healthy rivers are essential for a healthy economy. Our clean and green brand underpins our dairy industry."

Fonterra is the largest processor of milk in the world, producing more than 2 million tonnes of dairy products every year and employing 16,000 staff.

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