NZ position on Iraq no hindrance to business – Norgate

stuff.co.nz 12 April 2003

LONDON: The Government's stance on the war in Iraq is unlikely to prevent Fonterra supplying dairy products to the war-ravaged nation, chief executive Craig Norgate says.

"It's still pretty clear how we are going to feed the Iraqis," Mr Norgate said.

Because of the humanitarian needs of the Iraqi people, it was unlikely New Zealand products would be excluded due to United States disapproval of anti-war comments coming out of New Zealand.

The needs of the Iraqi people would come before political decisions, he said. "Where the food comes from is not important."

Mr Norgate said the rebuilding of the Iraqi economy was vital, because it had been a good market for Fonterra and, more importantly, for global economic stability.

"The key determinant for global markets is how the Iraqi situation is resolved. That's far more important than any localised issue."

Mr Norgate was talking to NZPA after speaking at the Dairy Industry Newsletter conference in London, where he said continuing economic uncertainties made for "tough conditions" for his company in world markets.

Mr Norgate said Fonterra shareholders would have to wait to see the benefits of improved prices between September last year and February this year.

"The rise in prices we saw has still not come through – but it will next season."

The higher value of the Kiwi dollar has been a factor in lowering the forecast for milk solid payouts to farmers, he said.

The Fonterra chief executive rejected any suggestion the company had sold its products at "fire sale" prices, contributing to low forecast earnings.

"Milk is a perishable product. Customers know if you have it sitting there and they are not going to buy it.

"We said to the market last September we are fully sold up, it's time for the price to rise."

Once Europe finally believed this, prices did rise, he said.

Mr Norgate's contract as CEO finishes in July and, although he would not confirm he had reapplied, he said: "I have made it clear that I have a passion for this business".

A Serious Fraud Office investigation into the so-called "Powdergate" scandal, involving allegations Kiwi Milk Products were exported illegally, is continuing and Mr Norgate said he had not heard of any new developments.

The SFO investigation was unlikely to affect his position, or chances of reappointment, as CEO of Fonterra.

"I'd be very surprised if it found anything different to what we did," he said.

Mr Norgate returns to New Zealand later today (UK time) after a week in Europe and Russia, and predicted Fonterra, one of the world's largest dairy companies, would grow at a slower rate than it had since its inception in 2001.

"We have built our business rapidly, now it's about settling things down and gaining clarity," he said.

"We are now in a position to step back and make sure we are doing things well."

In terms of the European and American markets, Mr Norgate thought strained relations between the US and France over the Iraq crisis could take two possible routes.

"Either the US focus turns to the trade environment to rebuild relationships, or you will see a situation where the wounds take longer to heal."

Other important markets for Fonterra would perform well, he said.

Southeast Asia will remain a focus; with the advantage Fonterra has in freight terms over its major Northern Hemisphere rivals.

"We will see progress in Australia and China, but not at the pace you have seen in the last few years."

Fonterra's alliance with Nestle in Latin America was also performing well, he said.

Fonterra's strong performance in Brazil, Argentina and Venezuela would see the company "roll out" operations in other Latin American countries, he said.

Mr Norgate said he was confident Fonterra would find markets for its butter, but admitted this would not be easy.

"Yes, you have a structural stockpile in Europe, but I would not compare it to ten years ago when you had a butter mountain."

There are still markets for New Zealand butter in Russia and the Middle East but selling butter "has always been a challenge", he said.

"We always think we will be able to sell the product, but do we think the price will rise? No"

Mr Norgate said the company's stance on genetically engineered (GE) food was that it simply could not afford to own it, he said.

"We will make sure we invent stuff, then decide what we do with it."

Responding to reports Agresearch could seek other partners or customers for its GE research, Mr Norgate said a lot of the work Agresearch did in this area was in collaboration with Fonterra.

"For us, it's a defensive investment."