Co-op culture key to Fonterra CEO replacement

The successor to Fonterra chief executive Andrew Ferrier doesn’t necessarily have to be an All Blacks supporter but the successful applicant will need a full understanding of the co-operative’s culture.

That’s the assessment of rural lobby group Federated Farmers following the news yesterday that Mr Ferrier will step down in the second half of this year after eight years at the dairy giant.

Fonterra chairman Sir Henry van der Heyden said yesterday that Mr Ferrier was committed to staying on until a suitable replacement is found. An internal and international search was underway and it was possible a suitable candidate would be found by the second half of the year, he said.

Federated farmers chairman Lachlan McKenzie said Mr Ferrier will leave the co-operative in good shape after handling some very large curve balls.

“If the leader of the management team doesn’t lead properly or have an appropriate team under him the wheels can fall off an organisation and we can’t say that about Andrew,” Mr McKenzie told NBR.

“A co-op is a different beast to a shareholder listed company and we hope that any new CEO understands that different culture and different philosophy, which is to maximise the milk supply benefits for members.

“But you need to have a key eye on how you manage the big structure and in making sure you maximise the profit as well as the member benefits.”

Mr Ferrier will depart Fonterra at a time when those benefits are being well maximised – thanks to strong demand in Asia, particularly from China.

Last week Fonterra lifted its forecast payout to farmers by 60c, bringing the total payment to as much as $8 a kilo of milk solids, or approximately $1 million of income for the average production farmer.

But it wasn’t that long ago that farmers were hurting from an opposite swing in the cycle, as Mr Ferrier discovered during the 2008/09 season.

Back then Mr Ferrier went in a short space of time from presenting a forecast which would have been the biggest in Fonterra’s history to a position where probably about half of all dairy farmers actually made a cash loss for that season.

Mr Ferrier might be remembered for the fleet footed management that Fonterra showed in recovering from that commodity implosion.

Of course he might also be remembered for his handling of the San Lu Chinese subsidiary melamine contamination tragedy the previous season.

He certainly fronted up over the scandal, but could he have done more to prevent it happening? Fonterra ended up writing off its entire $201 million investment in San Lu.

His biggest job was trying to convince farmers to change the co-operative’s capital structure in order to address three main areas of structural vulnerability – share redemption risk, long-term access to capital and investment options for shareholders.

But it didn’t get off to a good start.

The first plan was dumped when farmers quickly decided they weren’t going to buy into a float plan that would see “outsiders” own shares in the company.

Capital structure part two, which included share trading among farmers, was subsequently approved.

“The proposed capital structure now is far superior to the first thing that came out. That shows that Andrew had the ability to communicate to farmers and listen to their concerns,” Mr McKenzie said.

Mr Ferrier said he intended to continue living in New Zealand after he left Fonterra, but sought flexibility to spend more time with family, including in his homeland Canada

“Fonterra is a great co-operative and, when I leave, I will have absolute confidence in it becoming even stronger in the future,” Mr Ferrier said.

Last year his salary was in a range with an upper limit of $5.11 million, up from the $3.63 million the previous year.