Norco is staying tight lipped about last month’s departure of its newly appointed chief executive officer, but says it is not evading scrutiny of its performance, or dairy farming’s challenges in NSW and Queensland.
“We’re taking an in-depth look at our capabilities and opportunities and choices,” said dairy co-operative chairman, Greg McNamara, who has temporarily taken an executive team leadership role since Ben White’s sudden exit two weeks ago.
Farmer-owned Norco recently brought in external advisers to help review aspects of the 123-year-old co-op’s operations which need improving, changing or removing completely from its manufacturing and marketing model.
Where to now?
Mr McNamara said the strategic review was effectively looking at if “we do want to be in any particular business area for the long term, and what capabilities we should build on”.
Potential “capabilities” being considered include a much expanded shift to organic milk production by Norco suppliers in NSW and Queensland.
A concerted push into local and overseas organic dairy product sales would likely play strongly to the provenance strength of Norco’s brand and the company’s proud co-op traditions.
We’re not worried about our milk supplies, but maintaining a strong supply from our farmers is always something we’re concerned about
- Greg McNamara, Norco
The current business review follows a tough 12 months for many of Norco’s 220 suppliers who have endured serious flooding around the Queensland border in February 2017, then a prolonged autumn-winter-spring dry, plus leaping farm input costs and more downward milk price pressure.
The strategic review was initiated as Mr White arrived as CEO late last year, replacing previous boss Brett Kelly, who also left Norco unexpectedly in September.
Mr McNamara said Norco would not comment further, at this stage, about circumstances surrounding its CEO movements, primarily because it wanted to “respect the welfare” of those involved.
A recruitment process was underway again, but in the meantime company directors and senior management were focused on completing the strategic review – a process regularly undertaken about every four years.
“Our absolute focus has to be on the interests of Norco and the co-operative’s business priorities,” he said.
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Dairy pressure points
Although global dairy consumption was rising, Australian farmgate milk prices in real terms were likely to stay relatively flat, which meant the company must focus on creating more value from its milk supplies.
It was confident its farmer payments into 2018-19 would “hold relatively steady”, but Mr McNamara conceded farm profitability and the flow-on consequences to the processor’s milk receivals were under pressure.
“We’re not worried about our milk supplies, but maintaining a strong supply from our farmers is always something we’re concerned about,” he said.
“To keep that supply base we’re always trying to provide the best profitability incentives.”
Increasing Norco’s export efforts and authentic product options, including expanding its organic market, were areas the co-op’s milk processing business planned to extract more value from.
Organic growth option
“Organic product consumption only represents about 0.5 per cent of the total Australian market at present, but in Europe it has now reached 5pc and is expected to be near 20pc by 2030,” he said.
We’ve seen support coming from younger producers who regard investing effort in organics as a good business decision and doing something better for the planet.
- Greg McNamara, Norco
Although organic dairying was about 25pc less productive than conventional milking enterprises, Norco currently paid almost 90 cents a litre for organic milk, against a typical 57c for conventional supplies.
“It’s quite reasonable to expect our suppliers will be breeding cows more capable of managing organic production environments,” he said.
“We’ve seen support coming from younger producers who regard investing effort in organics as a good business decision and doing something better for the planet.”
Coincidentally, publicly listed Victorian milk producer and processor Australian Dairy Farms recently announced it will convert its six properties carrying 3500 cows to organic for milk and infant formula production.
ADF wants to move away from the “highly competitive conventional milk market to supplying high value, organic branded products”.
Flat price outlook
Mr McNamara observed current mainstream milk markets were unlikely to be “jumping dramatically any time soon” given the price fundamentals evident in Australia and internationally.
“Demand’s not going anywhere fast – supply volumes coming out of Europe and the US are pretty strong again, or oversupplied in some cases,” he said.
Meanwhile, a surge of energy cost increases for farmers and food processors generally were putting additional stress on production profitability.
Norco’s energy costs had jumped more than 30 per cent as new supplier contracts rolled over this financial year, while Mr McNamara said his own farm’s electricity bill had increased from about $6000 to $10,000 last quarter.
“And that’s after we get a significant discount on our power because as a Norco supplier we buy through a broker.”
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
