European experience points to need for suppliers to add value, diversify
The blockade by angry French dairy farmers of the Lactalis HQ at Laval carries a strong message for their New Zealand counterparts similarly dismayed by their returns, though not possessed of the Latin temperament required to man the barricades.
The lesson centres on the wisdom of signing up for a fixed volume and price contract which is the issue underpinning the Lactalis ructions, writes our European Correspondent.
The problem is that the dairy farmer cannot recover fixed costs by supplying milk at any price. In contrast a cooperative, Fonterra is the obvious example, is required to take all the milk that their members can supply.
The Lactalis blockade also brings into focus several other issues that are central to any business at all. First among them is the wisdom of having just the one outlet, in this case Lactalis. The other is the absence of any added value or diversification among the aggrieved suppliers.
These directly relate to the New Zealand situation. There is the dependence on the single client, and the absence of any value added alternatives in product diversification of which cheese is the obvious example.
Nobody can deny that the New Zealand single-desk procurement tradition has made it difficult for farmers to diversify their products and thus their source of income.
Lactalis (the “s” is sounded) is best known in New Zealand for its control of Parmalat. It is here that the roots of the current imbroglio started. During the acquisition of the Italian company Lactalis was required to supply details of its balance sheet.
Coordinates from these reluctantly provided figures indicated that the French company operated on a ratio principal of a 10 percent margin on anything it sold.
The company has not gone out of its way to cultivate its suppliers. It is owned and controlled by the Besnier family. It is now into its third generation in the form of Emmanuel Besnier, a man who makes the late Howard Hughes appear in comparison like a publicity hound.
In a country which specialises in recording the activities of the super rich there are just four photographs of Emmanuel in existence (above.)
He does not attend cocktail parties, show up at flashy restaurants or make appearances at any of France’s numerous business forums.
He “just works” we are told.
The company is responsible in 43 countries for the employment of 75,000 people. It rivals Nestle the other privately held milk European conglomerate.
The direct blockade of the Lactalis HQ and factory at Laval also draws attention to the shift in strategy by the dairy farmers or “raisers” as they are known.
A year ago their focus was on making trouble for the main hypermarkets which are known as the “big surfaces.”
Now the same farmers are content to wander through these big surfaces applying stand over tactics with the purpose of dissuading shoppers from buying the products of targeted processors, in this case Lactalis. They are free to do all this as and when they please.
The main thrust, the dumping of manure, and the rings of tractors and the road fires are now directed at the processor or “transformer” source, Lactalis.
President Francois Hollande’s socialist government can only let this state of affairs continue while trying to be seen to be inducing Lactalis and its belligerent suppliers to work something out.
From the MSCNewsWire reporters' desk - Wednesday 31 August 2016
