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Backlash Ensues Over Fonterra Decision to Slow Payments to Suppliers
March 8, 2016

A former Fonterra supplier says it is refusing to work for the dairy giant after it decided to take longer to pay its bills.

The North Island company, which employs 20 staff, said it had stopped carrying out work for the dairy giant and knew of others that were considering upping the profit margin they charged Fonterra after being forced to wait longer for payments.

It was revealed late last year that Fonterra had written to some suppliers, telling them they would have to wait until 61 days after the end of the month in which they had sent invoices to be paid.

Fonterra said about 3600 to 4000 of its largest suppliers were affected. Its previous practice had been to pay companies on the 20th of the month following the receipt of invoices.

The change did not affect farmers who sell milk to Fonterra.

A staff member at the North Island supplier said the change was unreasonable, particularly for firms such as the one she worked for, that had had to pay for materials for Fonterra jobs.

If it issued an invoice on March 6, it would not be paid until almost three months later, she said.

“We have stopped doing the work for them. We can’t afford to.”

But she did not want to publicly identify her company in case the situation changed and it wanted to have a relationship with Fonterra in future.
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Fonterra was facing tough times but “that’s the world nowadays”, she said. “Everyone is struggling to make a dollar.”

The change was “heavy-handed” and left no room for negotiation, she said.

“We are not Fonterra’s bank.”

Her firm was not alone in rebelling, she said. Some of five other Fonterra suppliers she had spoken to had made the same decision and another was considering raising its margins, she said.

“Then where is the benefit for Fonterra? They are having to pay a premium.”

Labour’s small business spokeswoman Jacinda Adern said paying people after three months was “not good enough”.

“Clearly Fonterra is facing big problems with the fall in the dairy price, however that is no excuse not to pay promptly,” she said.

“Fonterra needs to reverse its decision and treat its contractors fairly,” she said.

Fonterra chief financial officer Lukas Paravicini said in a statement that it had an “ongoing responsibility to our farmers to ensure we are operating as efficiently as possible”.

The company announced a 25-cent-per-kilo drop in forecast milk solid prices for the 2015-16 season, acknowledging that would hit farmers hard.

“As part of this, we are working to move all of our largest suppliers of goods and services to payment terms that match our global standard,” he said.

“It is about being efficient as possible and driving as much cash back to our farmers as possible,” he said.

Paravicini said during a conference call on the new payout forecast that Fonterra was “absolutely sound”. Chief executive Theo Spierings said it wanted to keep its cost base down and focus on its capital expenditure and cash flow.

By: Tom Pullar-Strecker


Spring 2018