Is Fonterra shedding suppliers?


An agribusiness analyst says Fonterra has done a U-turn on extended payment times for some of its suppliers. But he says the co-operative has also dropped as many as 1800 of its suppliers.

These include engineering and plant servicing firms.

"They are absolutely cherry picking who it is they want to work with to try to minimise both the number of suppliers and to optimise the service or goods they are getting from those suppliers," Massey University Dr James Lockhart told Paul Henry this morning.

It has been six weeks since the co-operative had to publicly defend a decision to extend payment times by two months for some suppliers.

The co-operative says less than 20 percent of its suppliers were affected by the decision to extend the payment times by sixty days.

This effectively extended payment times for a minority of suppliers from around 30 to 90 days.

Fonterra also confirmed that around 500 suppliers had been asked to cut their prices by up to ten percent, by identifying "efficiencies" in their businesses.

A supplier has written to Paul Henry saying that their extended payment times have now been reversed.

However Dr Lockhart says while payment times have been reduced for some suppliers he estimates between 1600 and 1800 suppliers have been dropped by Fonterra.

"Fonterra seems to be using considerable discretion in terms of the payments they are providing to both suppliers of services and suppliers of goods."

The payment situation is complicated. Dr Lockhart says some of the suppliers who have been returned to the 30 day payment cycle are being asked to wait 28 days before they can submit their invoice. This effectively means they are on a two-month payment cycle.

Dr Lockhart says Fonterra is quite rightly reducing its costs and head count in the face of low dairy prices. But he is concerned that a sustained rise in prices could be 24 to 36 months away.

"They are doing what you would expect them to be doing when they are hitting a cash problem, for want of a better word. Some confidence would be really, really, useful coming from Fonterra."

Fonterra has told Paul Henry: "We are in the process of talking to our vendors as it was never our intention to treat any small business unreasonably.

"We'll keep talking to them directly about their individual circumstances and any changes required."

Taranaki Chamber of Commerce chief executive Richard Williams says the news is disappointing. 

"In Taranaki and particularly south Taranaki… a lot of businesses were working very well with Fonterra, there was a great relationship they'd established over a number of years," he says.

"To actually lose that amount of business will create great hardship.

"I would certainly hope they would reconsider their decision, I recognise they're a business but negotiations need to take place.

"As many suppliers have been dropped it's going to be very interesting to see who's picking up that business. One would hope at the very best it's other local businesses."