Photo: Fonterra
Photo: Fonterra

BusinessNovember 3, 2020

What Fonterra is getting right and wrong on sustainability, according to Fonterra

Photo: Fonterra
Photo: Fonterra

The massive dairy cooperative has released its fourth annual sustainability report, highlighting what it reckons is going right and wrong in controversial environmental and social areas. 

What’s all this then?

The Tātou Tātou 2020 Sustainability Report is Fonterra’s attempt to bring together the strands that make up its wider strategy, to get a competitive advantage out of producing environmentally friendly and low-carbon milk in New Zealand and selling it to the world. The 84-page doorstopper was released this morning, outlining where progress is better and worse on what is sometimes referred to as the “triple bottom line” – social, environmental and financial outcomes. 

And how’s it all going for Fonterra?

It’s a complex picture, but on the financial side things are going much better for the cooperative compared to some deeply troubled previous years. Debt is being paid down, there’s plenty of cashflow, divestments are continuing from troubled overseas assets, and the money is flowing back into the country. An estimated $11bn was put into the regions through the milk price payout, not to mention farmer-shareholders once again getting a small dividend on top. 

Fonterra CEO Miles Hurrell (Photo: Dan Cook, Radio NZ)

That’s cool, but what about the environmental issues that people often criticise Fonterra for?

Here the progress was more mixed, with some clear wins being trumpeted and other areas noted for future improvement. One target set in 2003, to reduce the energy intensity at manufacturing sites by 20% by 2020, has now been hit. That saves “enough energy to power all the households in Aotearoa for 1.5 years”, according to the release. “It shows we’ve got proof that when we do set out to do things, we deliver on them,” said CEO Miles Hurrell.

The conversion of the Te Awamutu processing plant boiler from coal to wood pellets has also saved significant amounts of carbon. “I’m not sure how many companies took out 80,000 tonnes of emissions over the last winter, in terms of the Te Awamutu overhaul and using alternative fuel sources,” said chief operating officer Fraser Whineray. And he talked up other surprising aspects about the company’s carbon intensity he had learned since arriving last year. 

“Our global supply chain, shifting two and a half million tonnes of product, uses the same emissions as 80,000 cars do in New Zealand each year, and we’ve got four million cars. So even though people talk about food miles and distances of some of the carbon footprint, our end-to-end delivery of food nutrition across the planet is in a great position. It’s a competitive advantage, in an increasingly carbon-scarce world.” 

Again, carbon reduction is cool, but cows burp out methane. What’s happening there?

Because of methane emissions, dairy production accounts for about a quarter of New Zealand’s total emissions – most of which comes from Fonterra cows. And it’s perhaps notable that the word “carbon” appears in the report four times as much as “methane” – producing low-carbon milk is much more controllable and achievable for Fonterra than producing low-methane milk. Within that goal, they’re looking to technological and scientific approaches to reduce methane, like feeding cows methane inhibitors, including a type of seaweed. 

Fonterra’s dairy factory at Darfield, Canterbury (Photo: Fonterra)

How are they keeping tabs on farmers to make sure this all happens?

Fonterra is continuing to roll out Farm Environment Plans, and now 34% of supplier farmers have one in place. FEPs, as they’re called, basically give farmers specific actions to take to reduce emissions and environmental degradation. The costs of producing them are worn by Fonterra, rather than the farmers themselves. So why such low numbers? “When you look back at a macro level, would you like to go harder and faster? Absolutely we would,” said Whineray. “Resourcing has been a bit of a bottleneck in the past in this sort of area; we are increasing our resourcing significantly off the back of quite a robust discussion with the sustainability panel.”  

What is the sustainability panel?

The sustainability advisory panel is an external group that sees itself as a “critical friend” to Fonterra. It is chaired by Bridget Coates, a businessperson and director with vast experience. Coates said the board and senior management of Fonterra have plenty of “tolerance” for the panel challenging their views and plans. 

But does the panel have any actual hard power to demand changes? When asked for specific wins that could be pointed to, Coates said that wasn’t so much the function of the panel –  rather it is about putting forward perspectives they believe are important which may or may not then get taken on board. In fact, the panel doesn’t always even agree with itself. As examples, Coates cited the work of panel member Aroha Mead in bringing tikanga Māori principles into the internal communications of Fonterra, and the urging of Paul Gilding to do more on emissions, as examples of where the panel had made an impact. 

Are there any areas where Fonterra sees itself as doing genuinely badly?

One point noted in the report is that the senior leadership of Fonterra still isn’t particularly diverse, and is falling short of targets on both gender and ethnic diversity. 

On workplace safety, the rate of incidents requiring medical treatment ticked up over the course of the year. Out of about 20,000 staff, there were 247 incidents that required medical treatment. There were 10 incidents of serious injuries, which was a reduction on last year. 

Is this all just greenwashing, and we’re getting sucked in by marginal stuff that doesn’t really address the core issues around sustainability?

Possibly, and it will take years to really see progress in a lot of the areas that really matter. But analysing the report as a whole, one thing is clear – Fonterra is desperate to brand itself as being among the most environmentally friendly dairy producers in the world. That’s how they survive against global competition, and the rise of alternative proteins. And for that branding to be authentic – particularly for an organisation and sector that is closely scrutinised by media, environmental watchdog organisations and the public – measurable actions need to be taken and improved upon year after year.

Keep going!