Stanhope Fonterra factory not working to capacity, but still making money

By Geoff Adams

Fonterra’s recently upgraded Stanhope cheesemaking facility is not working to capacity but is still generating income for the company, Fonterra managing director Rene Dedoncker says.

The company has ploughed millions of dollars into upgrading the plant, but has not been able to run it at full capacity with milk volumes falling in northern Victoria and the rest of the state.

Fonterra has been transferring milk to the factory to keep it running at optimum level.

Mr Dedoncker said the factory was playing a part in Fonterra’s successful cheese business in the consumer and food service sectors.

‘‘We are the largest cheese player in the country and we have the number one brands,’’ he said.

‘‘That business has had its best year ever. Our branded products are doing very well and have had the best year ever.’’

Mr Dedoncker recently concluded a tour of the major milk regions in Australia and has been talking to suppliers about price forecasts and the company’s position.

Suppliers have been assured that Fonterra is funding higher milk prices out of its operations, not propping them up from any other place in the balance sheet.

‘‘I can look any farmer in the eye and say: we can afford this,’’ Mr Dedoncker said.

‘‘Does it have the potential to be better? It does. But do we need to see certain things play out? Certainly. But it’s too early to predict what it could be.

‘‘But the price we have put out there is one that has been earned and we are confident in paying.’’

Fonterra reviews its prices every two months.

Asked about differential pricing in different regions, Mr Dedoncker said he had been making the offers ‘‘crystal clear’’.

In northern Victoria, pricing was around a minimum volume and a higher quality standard.

‘‘The $6.80 farm gate milk price is available to everybody, if you can meet the higher standards you can make a choice.

‘‘In other regions we have a variety of different options.

‘‘In Gippsland there is premium for A2 conversion, in Tasmania there is an opportunity for growth, and in western Victoria we have agreements for servicing our Woolworths contracts.

‘‘The special offers are not for everyone, but we have been clear to suppliers about what they are.’’

Fonterra announced earlier this year it would be closing its Dennington plant in western Victoria, which raised some questions about the future of other factories.

However, Mr Dedoncker said the Stanhope and Dennington plants were very different.

‘‘Dennington is a much older asset and focused more on commodity powders.

‘‘At Stanhope we have a plant which is probably the most modern cheese plant in the Southern Hemisphere.

‘‘At Stanhope, the agility we have built in, has really come to the fore. Granted, it’s not running to capacity but we have enormous flexibility.’’