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Fonterra has unveiled a revised strategic framework aimed at bolstering its focus on high-performing ingredients and foodservice segments, as it seeks to maximise value for its farmer shareholders.

The dairy giant has also set its sights on Southeast Asia as the next major growth market outside China, citing the region’s burgeoning café and bakery scene as one of the reasons.

Unveiling its refreshed corporate strategy on Monday, the group said that dairy products used in baked goods are booming due to a rise in specialty bakeries and lifestyle cafés across the region, the Australian and New Zealand-listed co-operative.

Its products have found their way into popular dishes like egg tarts in Thailand, banh mi rolls in Vietnam, ube jam in the Philippines and crepes in Indonesia.

This shift follows a strategic review that reaffirmed Fonterra’s strengths as a B2B provider of dairy nutrition and prompted the exploration of divestment options for its global consumer businesses.

Chairman Peter McBride said: “The Co-op exists to provide stability and manage risk on farmers’ behalf, while maximising returns from their milk and capital investments. Through implementation of our strategy, we can grow returns to our owners while continuing to invest in the Co-op, maintaining the financial discipline and strong balance sheet we’ve worked hard to build over recent years."

He continued: “We have increased our target average return on capital to 10-12%, up from 9-10%, and announced a new dividend policy of 60-80% of earnings, up from 40-60%. At all times, we remain committed to maintaining the maximum sustainable Farmgate Milk Price.”

The revised approach includes an increase in the target average return on capital to 10-12%, up from the previous 9-10%, and a new dividend policy that will distribute 60-80% of earnings, a significant rise from the former range of 40-60%.

CEO Miles Hurrell added: “The foundations of our strategy – New Zealand milk, sustainability and dairy innovation – remain unchanged. What has shifted is our approach to leveraging these strengths”.

Fonterra has outlined six strategic priorities moving forward:

Deliver the strongest farmer offering: Collaborate with farmers to enhance profitability and support optimal payouts.

Unleash the ingredients engine: Strengthen its position as a leading provider of sophisticated dairy ingredients and enhance trading capabilities to boost both Farmgate Milk Price and earnings.

Expand foodservice momentum: Grow its successful Foodservice operations, particularly in China and other key markets.

Invest in future operations: Develop an efficient manufacturing and supply chain network that allows flexibility in allocating milk to the highest-return products and channels.

Enhance sustainability credentials: Improve sustainability initiatives and partnerships with customers who prioritize environmental considerations.

Drive innovation: Use science and technology to address challenges and capitalise on competitive advantages.

Making waves in the APAC region

Excluding China, Asia’s dairy import volumes rose by 13.2% in June compared to the same period a year earlier, with Southeast Asia responsible for much of this increase, the company said.

Over the 12 months to June, the region’s dairy imports rose 8.3% due to strong demand for whole milk powder from Malaysia and Bangladesh, and fluid milk products from Vietnam and the Philippines.

The company noted that the return of tourists to Southeast Asia over the last three years has been a significant driver of this increased demand.

The New Zealand-based dairy giant behind household brands such as Western Star butter, Mainland cheese and Perfect Italiano cheese also said its consumer business remains under review and could still be sold off, following the announcement of putting its Australian arm up for sale in May.

Fonterra’s Australian operations, which are currently part of a larger divestment of its Oceania division, include eight manufacturing sites across Victoria and Tasmania and employ about 1,600 people.

It collects approximately 1.4 billion litres of milk annually from hundreds of Australian farmers. The co-operative is also considering the sale of all its global consumer businesses, including Fonterra Sri Lanka.

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