Increase in GDP
rate will enable Fonterra to hire more people or pay higher salary to people.
This will in turn increases peoples spending capacity. The demand for milk will
increase since people will have a higher purchasing power (Trading Economies,
GDP is another factor affecting Fonterra. GDP
refers to the value of all the good and services produced in a country over a
period of one year. GDP can be calculated quarterly. The current GDP rate is
0.8 as compared to 0.4 in the first quarter of the year (appendix 3).
One of the most important economic factor
affecting Fonterra is inflation. Inflation is the rise in price of goods and
services in an economy. The inflation rate last year (2016) in the four
quarters was 0.1, 0.4, 0.4 and 0.4 respectively. This year in the four quarters
the inflation rate has increased to 1.3, 2.2, 1.7 and 1.99 (appendix 4). Rise
in inflation rate reduces the purchasing power of the dollar. This means
customers will have to pay more to buy a bottle of Fonterra’s milk. Also, when
inflation rises imports become expensive and exports become cheaper. This would
be the best time for Fonterra to export its products to other countries
(Trading Economies, 2017).
The New Zealand government plans to tighten
temporary work visas where in migrant worker who earn $49,000 would be allowed
to work for three years and then forced to leave New Zealand for a period of 12
months. Migrants earning more than $73,000 a year would be entitled for
residency if they claim points under the residency system. Migrant workers have
become a vital part of Fonterra. It has teams of skilled employees who run
their business. A lot of employees are on work visa and they’ll be affected by
the change in immigration rules. This will in turn affect Fonterra as it will
lose employees who are paid less than $49,000 per year (NZ Farmer, 2017).
Green Party and Labor Party authorities proposed
to impose dairy farmers with various ecological and environmental taxes (water
tax) that could cost an average of $18,000 every year for each ranch, and for
those farmers that draw water for irrigation the cost would be about $63,000
every year. This will affect Fonterra adversely where in the farmers will need
more borrowings to meet their expenditure (Dairy NZ, 2017).
DIRA likewise required that Fonterra must make up
to 5% of its production accessible to autonomous processors at a regulated
price so that the consumers who do not have the capacity of buying milk could
be served a variety of products (Ministry of Primary Industries, 2017).
Political analysis includes how the government
tries to intervene in the business. In 2001, the Dairy Industry Restructuring
Act 2001 (DIRA) was passed that empowered the foundation of Fonterra, a merger
of two dairy co-operative (Kiwi Co-operative Dairies Limited, the New Zealand
Co-operative Dairy Company Limited) and the New Zealand Dairy Board. DIRA
placed a constraint on Fonterra that it had to keep an open entry and exit
policy for its farmers at a reasonable value. This can lead to decline in milk
production if the farmers decide to exit.
A PEST analysis
helps to analyze and evaluate the external environmental factors that affect
the organization. PEST stands for Political, Economic, Social and Technological
factors (appendix 5).
Procurement – Milk collected from various
Fonterra farms are sent to its processing units.
Technology Development – Fonterra launched the
Fonterra Ventures Co-Lab where in people who have innovative ideas can submit
it to Fonterra which will be reviewed by the venture team (NZ Herald, 2017)
Human Resource Management – the HR hires and
trains employees or various positions in the company.
Firm infrastructure – Fonterra’s organizational
structure consists of the CEO who controls all the directors and various
departments under him. It is owned by valued farmers.
Services – Fonterra provides free milk to school
students under the ‘Milk for School’ program which helps to provide nutrition
Marketing and sales – Fonterra’s milk is
available at various stores and retail outlets all over the country. In the
first week of January 2017it introduced “Fresh Start with Dairy”
Outbound logistics – the milk is distributed from
the processing units to all the retailers and schools which are a part of ‘Milk
for School’ program. This milk is distributed in refrigerated trucks.
Operation – Milk is processed and packed with the
help of paper boards and plastic bottles which are designed to keep the milk
Inbound logistics – Cows are fed and milked at
the dairy farms. Milk is then transported from the farms to the processing
units in insulated tankers to prevent the milk from getting spoiled.
with Value Chain Analysis (appendix 2)
adopted a hierarchical organizational structure where in there are different
levels of authority and it has a vertical chain of command between the CEO and
the different departments. The higher level i.e. the CEO and board of directors
control the lower level and the information flows from the higher level to the
lower level. Information follows up through the same chain till it reaches the
higher level. All important decisions are made at the top level and then passed
on to the lower level for implementation. Also, the CEO also controls
Fonterra’s operations in different countries like Australia, Sri Lanka, Hong
Kong, Macau and India (Study.com, 2017).
Structure (appendix 1)