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Barry Harris | 16 March 2007
The Milk Run
The Foundation of Fonterra’s Global Dairy Supply Chain
The Milk Run: Today’s Presentation
Who is Fonterra?
Moving milk – a global perspective
The origin of our supply chain:
– The 14 000 million litre challenge
– Technology and innovation
Conclusion
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Fonterra - An Overview
One of the top six dairy companies in the world
Owned by more than 11 000 New Zealand farmers
Each supplying farm has an average area of 112 ha and an average herd size of 318 dairy cows.
In 2005/06 our suppliers produced an average of 99 000 kg milk solids per farm (1,165,000L)
Fonterra - An Overview
We have assets of over US$ 8 900 million generating sales of US$ 8 900 million for 2005/06
Each year we:
– collect 14 000 million litres of milk - 96 per cent of New Zealand’s milk production
– ship two million tonnes of product out of New Zealand
– export to more than 140 markets
– generate more than 20 per cent of New Zealand’s annual export earnings
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Fonterra – Our Brands
Fonterra’s Involvement in Global Sources of Milk Supply
JV
DPA (2 000 million litres)
Dairy Farmers America
Marketing agreement
Millions of Litres of Milk
Fonterra Australia (2 000 million litres)
Britannia
San Lu and subsidiaries (1 000 million litres)
Soprole(400 million litres)
Brands Operating Companies
NZM Sri Lanka
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Source: BERLIN, FAO, Euromonitor
SummarySummary
Change in Liquid Milk Equivalent (LME) consumption
2004-2014 (million tonnes)
Forecast CAGR 2004-2014
< 0%0% - 2.5%2.5% - 5.0%> 5.0%
2005 – 2014 Global Dairy Consumption Forecast(2.7% CAGR generating 147 million tonnes LME of new consumption)
LATAM +14
AME +14CN +52
EU +5
CIS/FSU +6
Trends In Demand
Note: Milk consumption includes cow milk only (excludes buffalo & goat)
CA/US +7
PK/IN +22
Growth in dairy consumption is expected to be strong in Latin America, North Africa/Middle East & Asia
Africa +11
EU +0
Higher farm-gate prices drive growth in milk production, with annual growth forecast to increase from 8m tonnes 1996-2004 to 13m in 2005-2014. This is achieved by:- 43m more cows (number of farms to increase by 14m to 120m)- 9% increase in milk yield per cow
Forecast CAGR 2004-2014
< 0%0% - 2.5%2.5% - 5.0%> 5.0%
CIS/FSU +22
LATAM +17
CN +20?CA/US +6
PK/IN +23
2005 – 2014 Global Dairy Production Forecast*(2.0% CAGR generating 116 million tonnes ECM of new production)
Trends In Supply SummarySummary
Change in Liquid Milk Equivalent (LME) consumption
2004-2014 (million tonnes)
Source: IFCN (contracted to BERLIN)Note: Milk consumption includes cow milk only (excludes buffalo & goat)
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Dairying in New Zealand
Pasture-based farming system
Aim to have all cows milking when grass is growing at its fastest and have the cows eating high-quality pasture.
This requires:
– all cows calving at the right time
– silage harvesting
New Zealand Milk Supply
New Zealand Milk Curve
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1/06
/200
6
1/07
/200
6
1/08
/200
6
1/09
/200
6
1/10
/200
6
1/11
/200
6
1/12
/200
6
1/01
/200
7
1/02
/200
7
1/03
/200
7
1/04
/200
7
1/05
/200
7
Volu
me
(000
L)
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Transportation in Fonterra
Every day we need to:
– Collect milk off-farm
– Deliver milk to our factories
– Transport liquid by-product between factories
– Transport dairy products and ingredients around New Zealand
– Ship dairy products and ingredients around the world
Milk Collection – The Challenges
Milk collection is one of the most difficult transport logistics problems in the world, due to:
1. The scale
– Amount of milk collected
– Number of pick-ups and deliveries
– Location of farms and factories
2. The unpredictability
– Can only estimate volumes in advance
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Milk Collection – The Challenges
Geographical issues
Weather
Shelf life
Specialty milk collections
Access restrictions
Inter-site transfers
Available time windows to pick up and deliver raw milk and milk by-products
Farm Milking Profile
Act per Day
0
1000
2000
3000
4000
5000
6000
7000
8000
28/0
7/20
02
11/0
8/20
02
25/0
8/20
02
8/09
/200
2
22/0
9/20
02
6/10
/200
2
20/1
0/20
02
3/11
/200
2
17/1
1/20
02
1/12
/200
2
15/1
2/20
02
29/1
2/20
02
12/0
1/20
03
26/0
1/20
03
9/02
/200
3
23/0
2/20
03
9/03
/200
3
23/0
3/20
03
6/04
/200
3
20/0
4/20
03
4/05
/200
3
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Forecasting Milk Collection Volumes
1 2 3 4 5
4000
4600
5400
4500
a?
b?
c?d?
e?
f?
g?
Farm #15 Mar 2003
Farm #16 Oct 2002
Farm #13 Jan 2003
Farm #25 Sep 2002
Farm #5 Mar 2003
Farm #13 Aug 2002
Farm #30 Aug 2002
The Scheduling Challenge
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The Scheduling Challenge
How do we solve the problem, so that we collect milk as efficiently as possible while, maintaining our service to suppliers, factories and external clients?
Fonterra’s Answer
Improved prediction and volume forecasting tools
– Also enables planning to begin up to a week ahead
Developing and adopting enabling systems with our partners
– Universities for research
– Specialist systems on tankers - hardware and software, enabling improved communication technologies
– Integrated scheduling and dispatch systems, enables future planning as well as dynamic optimisation on the day
Growing our people
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Milk Collection Programme Of Work
Standardised equipment on alltankers
– Incorporates radio frequency identification (RFID) technology
– The latest development in mobile metering and sampling technologies
Every Fonterra vat:
– has the same75mm (three - inch) bayonet connection
– has a RFID tag
Milk Collection Programme Of Work
Improved in-cab solution
– Uses mobile phone technology
– Determines the most efficient and safest route
Dynamic and integrated scheduling and dispatch system
Delivers real benefits
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Milk Vat Management System (MVMS)
We are piloting new technology that:
Remotely measures the volume and temperature of the milk in farm vats
Automatically relays the information to Fonterra
Will allow us to schedule our tankers more efficiently
May also have on-farm benefits
Summary – The Milk Run
Fonterra is a major player in global dairy trade – 32% of worldwide export trade, 2.5 million MT, 140 countries
Global dairy trade and consumption is growing 2.7% CAGR
Multi-origin sourcing of milk, but NZ remains the core of production –14 billion litres of milk/yr
Pastoral, seasonal production: 11,000 farmer suppliers, 70 processing plants – many variables
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Summary – The Milk Run
Challenges– Perishable product– Weather/seasonal production– Geography– Product mix/manufacturing requirements
More than 100 years of innovation and continuous improvement in milk collection in NZ
Latest advances in more accurate forecasting/increasing automation of scheduling and despatch (RFID, cellular technology)
Research + People + Technology
The Milk Run will be an ongoing challenge – to balance efficiency with service to our suppliers
The Milk Run will be an ongoing challenge – to balance efficiency with service to our suppliers
Thank you