Tātou tātou – You, me, us together
Miles Hurrell, Fonterra
After 18 years with Fonterra, Miles Hurrell was appointed as Chief Executive Officer in 2019. He has held numerous roles within the organisation since joining in 2000, just before Fonterra was formed. He sat down with MEttle to share his journey to his current role, Fonterra’s long-term strategy, and how he sees the future.
Hurrell says that his first working role was at a freight shipping company that worked with the New Zealand Dairy Board.
“After working there for a while, an opening in the Dairy Board came up. I moved across in 2000, just before Fonterra was formed, and I've been with the co-op since then.”
He then worked around the world in a number of leadership roles, including General Manager of Global Sourcing and General Manager Middle East, Africa, Russia and Eastern Europe. After leading a period of sustained growth across these regions, Hurrell was asked to come back and head up the Farm Source business, the part of the co-op that works with Fonterra’s farmer-owners. In this role, he was responsible for farmer services and engagement, milk sourcing and the operation of New Zealand’s 70 Farm Source™ retail stores.
Then, in 2019, the Fonterra board asked him to step into the CEO role, which he admits he did with some trepidation.
“The role came with a powerful sense of responsibility to do what was right for the farmer-shareholders. I felt the high expectations and responsibility to deliver not only for the farmer-shareholders but also for New Zealand as a whole. However, I don’t think this responsibility just sits with me – I believe our whole team feels that expectation.”
That said, Hurrell acknowledges the size of the task that awaited him.
“I knew the first couple of years were going to be tough as we began resetting the business. We had a big task ahead of us – we had to get our balance sheet back into shape and lift our financial discipline. To now be in a position three years on, having completed our reset phase and knowing what it means for our co-op to have shored up our foundations, is hugely satisfying.”
Hurrell says that understanding Fonterra’s purpose was central not only to unlocking its value to New Zealand but also to how and where the co-op can make positive changes to perform better for farmers, the environment, and customers into the future.
“Our co-op has a clear purpose – empowering people to create goodness for generations. That means you, me, us together; tātou, tātou. This purpose has been a strong motivator for our team and helped us focus on what we’re here to achieve.”
Hurrell acknowledges that one of the ways Fonterra contributes most to New Zealand’s economy is through the Farmgate Milk Price.
“The midpoint of our current forecast Farmgate Milk Price range is $8.40/kgMS, which would see almost $13 billion flow into regional New Zealand through milk price payments to farmers this season.”
He is also cognisant of the need to reduce the co-op’s environmental impact, with results of initiatives now beginning to appear.
“Last year our Te Awamutu plant completed its first season using renewable wood pellets, as opposed to coal. This alone reduced our coal carbon emissions by more than 11%. We have also set a target of all supplying farms having a farm environmental plan by 2025, and I’m pleased that 53% already have this in place.
“A record number of our farmer owners are also achieving the top level of The Co-operative Difference, our programme which takes customer insights and expectations integrated with what we know about the world and brings them together to help farmers know what needs to be done on the farm to help ensure demand for our product continues.”
A long-term growth plan built on three strategic choices and value targets
Hurrell knows that farming is an inter-generational business, and he is focused on the long-term. In September, Fonterra shared its strategy out to 2030, which Hurrell says gave people visibility of what the next decade would look like for the co-op.
“The world wants what we are supplying: sustainably produced, high-quality, nutritious milk from cared-for cows.”
“It’s very exciting. Dairy is a good business to be in, and New Zealand dairy is even better to be in. The world wants what we are supplying – sustainably produced, high-quality, nutritious milk from cared-for cows.”
That said, Hurrell notes that new approaches are needed to move forward, as demand for New Zealand milk supply is likely to decline or flatten over time.
“On one hand we require the right capital structure to ensure we don’t lose the benefit of what generations of farmers have built – a New Zealand dairy co-operative of scale. On the other hand, we have a huge opportunity to differentiate our New Zealand milk even further on the world stage. We have the chance to increase the value we generate for farmers and New Zealand over the next decade.”
To achieve this, Fonterra has made three strategic choices, Hurrell explains.
“We will continue to focus on New Zealand milk, on being a leader in sustainability, and also in dairy innovation and science. The aim is to improve our financial performance and therefore, strengthen our ability to repeatedly generate cash and create value for our shareholders and New Zealand.”
While continuing to pay the maximum sustainable milk price, he says that three key value targets that the co-op is aiming to achieve by FY 2030 are:
One: A 40-50% increase in operating profit from FY 2021, with the reduced interest from less debt should deliver approximately 75% increase in earnings – providing the ability to steadily increase dividends to around 40-45 cents/share by FY 2030.
Two: A Group Return on Capital of 9-10%, up from 6.6% in FY 2021.
Three: Through planned investments and improved earnings, an intended return of about $1 billion to shareholders by FY 2024, with approximately $2 billion of additional capital available for a mix of investment in further growth and return to shareholders.
“Our strategy and ability to achieve these targets depend on a sustainable supply of New Zealand milk, and in turn a capital structure that enables this,” he says. “This is the reason the changes to our capital structure by the board and management team are so important to our future.”
“We have a huge opportunity to differentiate New Zealand milk even further on the world stage. We have the chance to increase the value we generate for farmers and New Zealand over the next decade.”
Plant-based and alternative proteins are part of Fonterra’s future
Hurrell says that when looking at consumer preferences and global market share data, the majority of retail milk products and alternatives looks set to continue to be dairy, even when factoring in the rise of plant-based proteins.
“We definitely don’t see it being a case of one or the other, though. It’s very much a case of dairy and plant-based proteins. As consumer preferences evolve, we will stay at the forefront of innovation to understand and meet those preferences and keep an eye on tomorrow to future-proof the co-op for generations to come.”
At a time of COP26 and global focus further sharpening on the work that countries and organisations’ need to do to combat the effects of climate change, Hurrell says that sustainability is incredibly important to Fonterra’s people and those they work with.
“New Zealand is the most carbon-efficient dairy nation on the planet, and we can’t slow down now. Our customers want to know where their food comes from and the environmental impact it leaves, and our farmer owners’ livelihoods rely on a stable climate and healthy ecosystems.
“This is why we have an aspiration for our co-op to be net zero carbon by 2050. Over the next decade we intend to invest around $1 billion in reducing carbon emissions and in improving water efficiency and treatment at our manufacturing sites.”
Hurrell says that to maintain a relative carbon footprint advantage against northern hemisphere farming systems, ‘we must solve the methane challenge’. This means that the co-op will be redoubling its innovation efforts to try to find a solution.
“If we can see a vaccination for COVID-19 created through the right people working on the solution, I’m confident we can do the same for the methane challenge. Doing so will also allow us to invest in our brands and showcase New Zealand’s sustainable nutrition credentials.
“This is a key part of our growth story in our food service and consumer channels and it will help us create more value through our ingredients channel as it enables us to helping customers meet their own sustainability goals.”
“Our customers want to know where their food comes from and the environmental impact it leaves, and our farmer owners’ livelihoods rely on a stable climate and healthy ecosystems.”
Despite the worldwide attention on climate change and necessary action to limit its effects, Hurrell identifies that in the short-term one of Fonterra’s – and New Zealand’s – most pressing challenges is the ongoing disruption in the global supply chain.
“Supply chain challenges aren’t going away. Fortunately, thanks to Kotahi, a shipping partnership we’re in with Silver Fern Farms, we’ve continued to get our products to market. Our customers are very grateful for this, but it does require a huge amount of hard graft by our supply chain teams.
“What’s also great about Kotahi, its not just Fonterra that’s seen the benefits from scale of Kotahi and it’s partnership with Maersk. Many other Kiwi companies have been able to get their product to market too.”
Meeting these challenges and delivering on Fonterra’s strategies will of course involve the efforts and skills of Fonterra’s people. Hurrell says that over his time so far as CEO he is most proud of the Co-op’s people and how they have worked together to reset the business and strengthen the balance sheet.
“Our people have achieved this at the same time as managing COVID-19 and the flow-on effects, and for many all while having to of work from home. Our progress is a testament to their commitment to doing the right thing for our farmer owners, customers, and New Zealand.”
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MEttle, a collection of stories and interviews with influential New Zealand business leaders, curated by MinterEllisonRuddWatts.