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Organizational Structure Of Fonterra Dairy Company

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Question:

Discuss about the Organizational Structure of Fonterra Dairy Company.

 

Answer:

Introduction

The dairy industry in Australia is estimated to be worth 13 billion dollars, including the manufacturing and processing industry, having a farm gate value worth 4 billion dollars. The industry enriches regional communities around Australia (Council, 2014).

The dairy farmers in Australia, who are more than 6000 in number, produce approximately 9.7 billion liters of milk in a year. The industry employs more than 40,000 citizens on the farms and in the factories, at the same time, the indirectly related industries employ more than 100,000 nationals.

Dairy farming is also one of the country's leading rural industries by value addition through downstream dispensation. Much of processing is around the farming areas, therefore spawning economic activity in the rural regions of Australia.

Dairy farming in the country is a well-established industry spanning across temperate and subtropical areas of the country. While the majority of milk production take place in the southeastern states, all the states have dairy productions supplying fresh milk to cities and towns that are nearby. Nevertheless, the processing of long life shelf products such as cheese and specialized milk powders is more focused in the southeast parts of the country (Francis, 2013).

The industry is continuing to be a vital rural industry in the country. Productivity on the farms is increasing due to improved pasture, feeds, and animal management techniques. Complementary feeding with grains is common, but the dairy industry has remained mostly pasture-based. Though the Victoria state is dominant in milk production, all the states have sustainable productions supplying fresh milk to nearby towns and cities. As one of the largest employers in the country, the industry adds value through processing milk to produce cheese,

Yogurt, butter, and cream. One dairy company that has the largest market share in Australia is the Fonterra dairy business. The company is known well across the globe with its operations in Australia and New Zealand forming the foundation of its global operations. The company set foot in Australia in 2001 after acquiring a 25 percent stake in the Victorian processor Bonlac Foods. Since then, the company has bought other well-known Australian businesses such as Borland dairies and the Murrumbidgee Dairy Products. Mid 2006, Fonterra Australia bought Bonlac Foods business. Today, the dairy company has employed 2,000 people, who gather 21 percent of the milk in Australia, operating ten manufacturing locations (Trechter, 2003).

 

Company’s Strategies within Australia and Overseas

Through legacy actions, the dairy company has been part of the dairy industry in the country for a period longer than 50 years. In a bid to add value and to unlock goodness to their esteemed customers, the company has strategically invested heavily in research and innovation. With further 3,500 natural constituents, milk offers many potentials for improvement to meet the changing needs for dairy nutrition. The company’s dairy science is leading to improve nutrition for mothers and infants while keeping the aging population mobile and putting healthy options on the family menu (Boland, Singh, & Thompson, 2014). Developments at the company’s research center, for example, the spreadable butter, bone nutrition products, functional milk concentrates have opened up opportunities to make more products from dairy ingredients. The company has an open innovation policy which encourages any external partner to contribute to the development of new product and technologies. The company has also partnered with many learning institutions and research centers all over the world. (Heron, 2016)

The company aims at being globally relevant, to build a globally related corporation which makes a change in the livelihoods of more than 2 billion people by 2025. The company has an excellent engagement with people through corporate social responsibility hence a good reputation for the enterprise. Through the company’s investment in both food science and market research, the business aims at building and growing beyond the current client positions, deliver on food service potential, and develop primary positions in pediatrics and maternal nutrition. Fonterra knows that for the company to achieve the strategies put in place, policy alone cannot be enough, but the performance culture is vital for the enterprise to deliver high returns. The enterprise is, therefore, keen on capital and resource distribution, fixing underperforming branches, executing their plans efficiently while focusing on the consumer (Stringer & Heron, 2008).

The company's multi-hub strategy aims at matching the demand growth around the globe. The global partnerships with other global enterprises such as those in Europe and China, (A-ware/ Dairy Crest partnerships and Global Fonterra and Being mate Partnerships), will enable the company to achieve global relevance (Stuart Gray, 2010).

 

Company Structure and Leadership Style

Fonterra Company commits to the highest standards of corporate governance and direction. The company has adopted corporate transformational leadership structure in its various categories of management. At the top of business governance and management structure, the company has the company governance team. The governance of the enterprise operates in a manner that promotes the interest of the shareholders, transparency, and efficient risk management. The administration balance between roles and functions of the board and teams (Jean Jacques du Plessis, 2010) The Company’s board comprises of 13 board members; nine elected by the shareholders whereas the board appoints four members who are approved by the stakeholders at the Annual General Meeting. The directors who are appointed are selected to ensure that the company’s board has the necessary skills and expertise to lead Fonterra dairy. They are expected to bring to the Board the appropriate qualifications and proficiencies which match the industry knowledge and other knowledge delivered by the elected directors. The leaders chose to serve the company must have a shareholding interest, because the directors will relatively have a supplier association with the company and primarily not categorized as independent under best practices characterizations. The company directors who are to be appointed must meet the NZX benchmarks for independence and are anticipated by Fonterra to uphold freedom for the period they serve the enterprise (Borthwick & Roberts, 2014). All the company directors have complied with the statutory requirements for revealing interests and with the company’s code of conduct regulating both directors and the administration in their daily activities with Fonterra business and the associated companies. The structure of the board is an important constituent in the Fonterra governance system. As the company continues to mature, the board’s structure revision is carried out in consultation with the company’s shareholders. The board contemplates that the combination of both elected and appointed directors, as stipulated in the company’s constitution, provide a suitable balance for the board to function in the best interest of the shareholders. The company’s board has a charter defining its operations and relationships with the management (Hitt, Ireland, & Hoskisson, 2007).

The board’s responsibility is to provide guidance, direction, and oversight of Fonterra. The Board reports to the shareholders regarding the performance of the enterprise. The specific duties of the board include; the board reviews the bonuses policy and declares the final dividend, determine the milk price and report the cooperatives share price when each season commences. The board also appoints and reviews the CEOs performance, delegate authority to the management team and monitors how the management exercises this power, engages in the development of the strategic plan, approves significant acquisitions for the business and oversees the board committees and the sectors covered by these committee (Baxt, 2005).

The company has a management team whose leader is the current chief executive officer Mr. Theo Speirings. The management team structure is in a manner that complements the strategy of Fonterra dairy company and reflects the focus on dairy nutrition and evolving markets.

The company's board of directors uses working groups or committees to help in facilitating efficient and effective decision making in the business. These working groups and committees have on paper terms of reference and report either to the management or the board. The members of the groups are directors only, though other personnel may be present only as observers. Working groups are made up of shareholders, employees or others as members in addition to the executives (Fonterra, 2014).

 


The board reviews the terms of references and the membership of each working group and committee on an annual basis and gives directions and recommendations for change when needed. In Fonterra Dairy Company, there exist five board committees which are permanent and one working group (Fonterra, corporate governance, 2014) The Company forms Ad hoc committees when urgently required by the business.

Some of the committees and their functions include; the finance, audits and risk committee which ensures the management gets financial reports which are of quality and integrity. The committee also reviews the risk and assurance processes and act as the oversight for treasury procedures and policies. The appointments Remuneration and Development Committee obtains assurance that the human resource policies and practices support the organization's goals. The shareholder relations committee monitors relations between the shareholders and the company and reviews the delivery of services to the shareholders. The external affairs committee assist the board in building foreign relations with the political contacts and the international trade procedure.

Fonterra Company in a bid to have the best management and working force financed projects intended to enhance the leadership capacity of its management teams. Significant funding is targeting the countryside leadership in Australia, study tours for the employees and forums for directors of the milk processing companies in the country. Support is coming from the industry players with some new enterprises continuing to invest in developing the next generation of directors and managers. Fonterra carries out a two-day introductory training workshop program for members who are interested in advanced progression as the company's representative or manager. For example, in 2003, seven supplier associates were selected in a group of 214 shareholders in an intensive selection process to take part in continuous personalized training over a span of two years. Each was assigned his/her coach and mentor. There was a review on the quarterly and annual basis to guarantee that the desired and agreed outcomes were on track. The participants also contributed to the cost of this program (Company, 2014).

The necessity for leadership across the entire value chain of the company has never been greater than today. Large openings and risks lie ahead in the industry, and the capacity and capability of the leadership will play a significant role in ensuring that the company succeeds in its future endeavors. It is an estimate that the dairy industry in Australia still needs between 150 to 200 personnel who are well skilled and knowledgeable enough to lead the dairy farms, for the senior's roles 30 to 40 specialists is required. This shortage is as a result strong focus on the business by young members and family commitments also plays a significant role. Failure by the community to understand that there is importance in influencing the government and community in the decision-making process (Council, Australian Dairy Industry, 2014).

To adequately address the ‘crack ‘between the demand and supply for the required leadership skills in the dairy industry, it is imperative that one can distinguish amongst the various levels and roles of leadership in the business. Fonterra Dairy Company has been able to achieve this efficiently. Good governance forms the groundwork of running teams. Leading requires a shared vision and trust of those under your leadership (Klerkx & Nettle, 2013).

 

Summary

In my view, the effective governance team that the company has, coupled with the skilled workforce and the investment in research, the company is headed in the right direction. For instance, issues relating to the business are discussed with the staff as early as possible in a bid to make everyone involved understand the situation. Issues such as suggesting a change in the feeding methods if recommended, for example, all the costs is deliberated so that the employees comprehend the reason behind the modification. Effective communication requires trust between the parties involved, being open between the employees and the management of Fonterra have ensured that the workforce feels a sense of belonging. In many years to come, Fonterra will be a force to reckon with because the company leadership structure have made it possible for any individual to come up with the idea that can propel the business to achieve greatness. The management's open door policy allows employees who are innovative to share their thoughts with the top company management hence the success of the company does not only depend on the leadership of the company only but also rely on the contribution of the employees.

 

References

Baxt, R. (2005). Duties and responsibilities of directors and officers. Sydney: Australian Institute of Co.

Boland, M., Singh, H., & Thompson, A. (2014). Milk proteins : from expression to food. London: Elsevier Science.

Borthwick, A., & Roberts, H. (2014). Corporate Governance. The Effect of NZX 2003 Regulated Corpoarated, 1-55.

The company, F. D. (2014, February 26). News and Media. Retrieved from Bonac Supply Company And Fonterra Australia Address Dairy Industry Skill Shortage By DevelopingDairyLeaders: https://www.fonterra.com/au/en/Hub+Sites/News+and+Media/Media+Releases/Bonlac+Supply+Company+and+Fonterra+Australia+address+dairy+industry+skill+shortage+by+developing+dairy+leaders

Council, A. D. (2014). Australian Dairy Industry. Agricultural Competitiveness Green Paper, 46.

Council, A. D. (2014). The Agricultural Competitiveness Issues. Australian Dairy Industry, 5-10.

Fonterra. (2014, February 26). corporate governance. Retrieved from Fonterra Australia: https://www.fonterra.com/au/en/About/Our+Governance/Corporate+Governance

Fonterra. (2014, February 26). Fonterra Dairy Company. Retrieved from Boarrd of Directors
: https://www.fonterra.com/au/en/about/our+governance/board+of+directors/board+of+directors

Francis, T. a. (2013). A Global Perspective on Modern Dairy: Occupational Health and Safety Challenges and Opportunities. Journal, 187-197.

Heron, R. L. (2016). Agri-Food Commodity Chains and Globalising Networks. Routledge.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2007). Strategic management : competitiveness and globalization; [concepts and classes]. Ohio: Mason.

Jean Jacques du Plessis, A. H. (2010). Principles of Contemporary Corporate Governance. Cambridge University Press.

Klerkx, L., & Nettle, R. (2013). Achievements and challenges of innovation co-production support initiatives in the Australian and Dutch dairy sectors: A comparative study. Science Direct, 74-89.

Stringer, C., & Heron, R. B. (2008). Agri-food commodity chains and globalizing networks. Burlington: Aldershot, England.

Stuart Gray. (2010). New Zealand Geographer. Fonterra Co-operative Group, and shaping the future.

Trechter, D. (2003). Comparing the Australian Wheat Board. A Neo-Institutional Assessment of Cooperative evolution, 4-10.

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