SWEET & SOUR MILK

Posted in Blog on May 26, 2020

The latest news about Fonterra restructuring and the dairy pay-out leads me to think about a couple of things – firstly where we spend/focus our time and resources and secondly commodity versus higher value products.
 

What’s interesting about the Fonterra news is not that they pay out about $270m in salaries including 2500 people earning more than $100,000 and that they are cutting administration roles BUT looking to expand the sales and marketing teams.  I find it interesting timing that it takes a reduced pay-out to lead to that response.
 

I recall from my wine industry days the difference between those companies that were growing sales and profitability versus those that were struggling to even make a profit.  The difference was the investment in sales and marketing.  In that case it meant people on the ground, in market, speaking the language (and dialect) and knowing the key customers personally.  The bigger players were investing something like 23% of their budgets in that space.  Those companies that were struggling were investing something like 9%.  And no surprises those that invested in their customer relationships and marketing channels were growing at 20 – 30% in both sales AND profit.
 

Which reminds me of a true story back in the days when I was driving trucks (Freightways Driver of the Year 1977 no less).  I was sent over to pick up some tractors from Port Lyttleton and take them down to Ashburton.  Now I’m an admirer of machinery and love vintage vehicles too but these were the ugliest Russians I had ever seen – even for a tractor.  They were called Belarus tractors and looked about 30 years behind the technology at the time. 
 

Anyway I was curious to ask the tractor company at Ashburton why they had bought these tractors when they had fabulous looking John Deere’s and Cases etc.  Well he said it was a bit of a deal.  The Dairy Board (predecessor to Fonterra) had a network of sales people all around the world working in really obscure markets including Russia.  At the time the Russians were not allowed to pay for western goods in hard currency (cold war) and so had to do product swaps.  That’s how we ended up with these tractors which are a third of the price of the flash US models.  Imagine today some bright young sales person fresh out of university with an MBA way out the backblocks in a cold Russian winter swapping butter and cheese and milk powder for a yard full of tractors ???.
 

Moral of this story?  Get out and focus on markets and customers, invest in them and be prepared to do innovative and creative deals to move products.
 

The second reminder was from my days as a milk boy – admitting age a bit here but that was when your milk, bread and newspaper (2 a day in ChCh) were delivered direct to your letter box and there was also a fish man and a vege man (both Dutch ahem) who would come round twice a week also.  Anyway I worked on the milk round for 11 years (that’s where I learnt to drive a truck at the age of 12) and my pay at the beginning was a ½ pint of flavoured milk.  I used to hide the chocolate ones so that they couldn’t be sold – I’m sure the milk man didn’t realise.  But I remember that milk was really tasty and fresh and felt like it was good for us.  Needed strong bones to do the running.   Compared to the milks of today (except for some) it was delicious.  I had the pleasure of tasting some fresh biologically farmed milk the other day and maybe my memory is slipping a bit (may be the aforementioned wine industry) but this milk was just incredible.  And it apparently sold for 8 -10 times the value of our local product up in the Asian markets. 
 

Now that makes me think about the value of really elite products versus volume commodities.  Yes there could be a limit on the volumes that a market will take but it is still about branded high quality customer focused products.  When I think about the tough challenges for farmers in our district I just wonder about how much focus and energy is going into shifting out of exposure to commodity markets versus alternative or higher value products.    You never know might be able to swap some vodka for fresh milk. 

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