Andrew Ferrier: Shaking up the global dairy sector

Eight years ago, Canadian executive Andrew Ferrier was hired to run New Zealand's biggest company, Fonterra, which is also the world's largest milk processor. It was no picnic. Fonterra was still a divided entity, formed from a merger of two farmer co-ops and the country's milk marketing board. But the experience worked out well for Mr. Ferrier, who retired in late September, having won plaudits for building Fonterra's presence in the expanding global dairy trade – and delivering returns to farmer-owners. As he prepares for his next adventure, Mr. Ferrier, 52, has advice for Canada: If it hopes to participate in the rising demand for milk products, there must be reform.

Why leave now?

I've always defined success as building an organization that is going to get better and better – with a strong team, a clear strategy, and winning in the marketplace. Fonterra is absolutely in that space. I felt professionally its mission was accomplished.

And running a global business of this magnitude is a massive, massive undertaking. You go through a lot of personal sacrifice and compromise with your family. It was time to recalibrate and spend more time with my family, including my broader family in Canada. What better time than at the top of my game?

I hear that you may become an investor.

That's one thing I'll do – in New Zealand and Canada. I can help CEOs of mid-sized companies when the businesses are starting to get a bit more complicated and more global. If I have a piece of the pie, I can maybe sit on the board, mentor the CEO and help take the business to the next level. That's the blueprint, and I'm looking at options.

Also, I'm likely to go on a couple of boards of companies that interest me – ideally one in Canada and one down in this part of world. My wife [Danielle Guitard]and I love New Zealand but we also love Canada. We'd like to spend a part of the year in both. Our youngest son is in high school in New Zealand and we have two children in Canadian universities.

How many companies will you and Danielle help?

We have the capacity for two or three investments – we're not talking hundreds. And we are not looking at startups or companies with, say, $10-million in revenue. I can bring skills to companies when they start getting complicated – a few hundred million dollars in revenue, a few hundred employees, growing fast and looking for international experience. You can't take on too many if you are going to be personally active. One company I'm talking to now has about $150-million in sales.

What's the biggest thing learned at Fonterra?

Looking at the entire world as a market. When you're in Canada you have blinders on – there is this huge U.S. market, and most companies look at the world as North America and everything else. I divide the world into Asia, Europe, Africa, and all the Americas, including South America. The opportunities are enormous.

We are seeing huge growth in the middle class in large population areas, primarily in Asia but also in South America. In Asia, you are getting a change in consumer drivers – from heavy carbohydrate consumption to protein and healthier foods. Dairy is in an absolute sweet spot.

How is Fonterra doing in export markets?

Of New Zealand production, 96 per cent is exported. Even so, only 70 per cent of our business is New Zealand-based – we now collect 30-per-cent non-New Zealand milk. Fonterra will grow on its strength – it is very good at being a vertically integrated dairy business, from collecting milk to making specialty ingredients. With rising global demand for dairy nutrition, it should continue to tap more milk pools overseas. It is the second-largest collector of milk in Australia, the largest in Chile and the second-largest in Brazil.

In this rising world market for dairy, is Canada held back by its regulatory structure?

Absolutely. The structure in Canada is very fundamentally aimed at producing dairy products for the Canadian market; we have a mechanism that simply keeps supply linked to demand in Canada.

So we're missing out on this great global dairy market?

I do think there are far more opportunities for Canadian dairy farmers, but they will have to reform in time if they want to take advantage of them. You can't protect your market at home and then talk in terms of 'I want to go and start selling to the rest of the world.'

Are we talking of the limitations of supply management?

Yes. The reason New Zealand farmers are doing so well is that all safety nets were taken away from them 30 years ago. At that time it was either sink or swim – either the industry imploded or the farmers hunkered down and figured out a way to farm that was far more efficient. That is ultimately what they did in a huge way.

Kiwi farmers showed resilience – and the prize now is enormous because they are the most efficient dairy producers in the world. And, yes, Mother Nature helps. You don't have to have your cows indoors in winter and they can eat pasture grass year-round. But, still, what [the end of safety nets]has bred is a couple of generations of farmers who are real business people.

The business is built around how you produce milk efficiently, whereas in Canada the business is built around: How do you supply your quota? That doesn't get the same economic drivers. You get a much better economic driver if it is simply a case of: 'I'm in a competitive market and if I'm not efficient, I'm not going to be around.'

Some dairy groups insist farmers in Canada have a better standard of living than in countries like New Zealand. Is that not right?

You get cycles in the world, but absolutely, New Zealand farmers are better off if you look over the long term. The bizarre thing is that New Zealand farmers are resented by people in the cities for being wealthy. I grew up in Canada where farmers were always the poor ones and we're always looking for ways to support them. Here it is the other way around.

But aren't Canadian farmers better shielded from harsh price cycles?

The cycles were much more exaggerated in the past. Demand now is so all encompassing and strong, there is opportunity for everybody. For example, New Zealand isn't going to fill all the demand in Asia – you are going to need far more. I've regularly visited Washington and the U.S. industry doesn't need to be sitting around worrying about New Zealand flooding American milk markets. It should be looking at opportunities to supply Asia. New Zealand has no economic incentive to flood the U.S. or Canada with milk. We get a far better return out of Asia. I do know it is a complicated industry in Canada and there doesn't seem to be much appetite in the industry for reform. But I'm fundamentally a free market guy and I've enjoyed seeing the incredible success of an industry here being on the free market.

Any advice for Canadians doing business in New Zealand?

The two countries are a good fit – in the self-deprecating way of looking at ourselves. We are not afraid to laugh at ourselves. We are a little bit more humble that our big neighbours – Canada as opposed to the U.S. and New Zealand versus Australia. But New Zealand doesn't have a large supply of executives who have grown up in a truly competitive environment – because it is such a small country. If you look at a number of bigger companies, it is not surprising to see them run by foreigners who have this kind of background.

In driving change at Fonterra, I found things were designed more out of a textbook, rather than designed to be honed in the marketplace. You have to learn how to bridge the textbook and the reality of the market. Part of it was understanding that you need the absolute best team playing for you, whether the All Blacks in rugby or the Canadian Olympic hockey team. You have to have the best players and working together in a seamless way.

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ANDREW FERRIER

Title:

Former CEO, Fonterra Co-operative Group Ltd.; now an investor and director

Personal:

Born in Montreal, 52 years old

Education:

Bachelor's in business, University of New Brunswick

MBA, Concordia University

Career highlights:

Sixteen years in the sugar industry in Canada, the U.S., Britain and Mexico.

Became president and CEO of Tate & Lyle North America Sugars Inc.

Headed GSW Inc., a Canadian maker of water heaters and other products, from 2000 to 2003.

Served as CEO of Fonterra from Sept. 1, 2003-Sept. 30, 2011.