Massey Magazine November 2001

CEO
Name: Craig Norgate
Qualification: BBS

Take Craig Norgate away from the corporate head office of Fonterra Co-operative Group in Auckland and slip him into the local at Te Awamutu or Winton, among a few of his 14,000 dairy farmer shareholders, and you can imagine him being comfortable sharing a beer and yarn. He likes the people he works for, and he likes his encounters to be personal: “It’s only by looking you in the eye that farmers decide whether they will trust you.”

They do so far: an overwhelming majority – 84 percent – of dairy farmers voted for the creation of the new mega dairy co-operative from Kiwi Co-operative Dairies, the New Zealand Dairy Group and the Dairy Board.

And this dairy co-operative is very mega. To put it into perspective, about one dollar in every five New Zealand earns is earned by the Fonterra Co-operative Group, which has an $11 billion turnover and 20,000 employees, many based around the globe.

Now, says Norgate, it is up to Fonterra to prove itself. It’s working on that. A string of announcements have followed the merger. An alliance has been struck with the Australian food-processing firm National Foods. New Zealand is now the main marketer of skim milk powder in the United States. With the acquisition of two key businesses Fonterra has leapfrogged into the top 10 in the lucrative Mexican dairy market. An alliance has been struck with Nestlé, the world’s number one food company, to go after the North, Central and South American milk products markets (excluding infant formulas, condensed milks, cheese and butter): markets where the growth in demand is projected at four percent per annum for the next five years.

Fonterra has other promises to keep. One that farmers are unlikely to forget is a $330-odd million improvement in returns to the industry. A third of this is to derive from the savings from merging the three organisations. The rest, says Norgate, will be created by more efficient product development and manufacturing, greater responsiveness to market opportunities, and making better use of the best staff.

At 36 Craig Norgate is a year younger than Teresa Gattung was when she took the top job at Telecom. His pay packet, including bonuses, is rumoured to be closer to $2 million than $1 million. (Last year he earned $1.15 million as the CEO of Kiwi.) And it’s only 15 years since he left Massey with a BBS in finance and accounting.

Three candidates were shortlisted for the Fonterra job, but Norgate, who had turned Kiwi Co-operative Dairies into a $2.5 billion company, was always odds-on favourite. The clincher may have been his focus on people and an ability to think strategically on a global level: to project what scenarios a course of action might create.

His finance background has given him an intuitive understanding of how to manage money, but it’s managing and encouraging the people that Norgate says he likes best. Since taking up the reins he’s been filling out the top three layers of senior management within the company, selecting people from the three organisations that have come together to form Fonterra. He’s looked for people with a flair for leadership, a willingness to take responsibility and be accountable, and who manage openly and honestly rather than by controlling information. People, he’d like to think, like himself. (“I’d rather say too much and regret it later than hold back and have people who are cynical and don’t trust me,” says Norgate.) Once he has those people he sees his own role as providing the direction and creating the environment where they can unleash their energy. Don’t expect laissez-faire. Norgate has a reputation for being performance-focused. “As a leader it’s fine to be tough, as long as you’re fair and supportive,” he says.

He is excited about the future. “Fonterra is enabling market strategies that would have been difficult under the old industry structure. The Dairy Board had two major shareholders — Kiwi and NZDG. It was fine when the Board marketed product for a number of smaller dairy companies, but with two it didn’t work. There were three boards, three CEOs, all with their own world views. What the industry has achieved has been built despite the structure. “We’ve got people from all over the world wanting to talk to us now,” says Norgate.

Fonterra is focusing on Asia and Latin America, where New Zealand is the market leader in milk powders. It plans to base much of its expanding business on local brands (a strategy Norgate followed while with Kiwi) and on joint ventures, one of these being the Nestlé alliance. Should Fonterra be wary of its much larger partner?

“Nestlé is our biggest customer. It’s our partner in some areas and we compete in others. But in the dairy market we have the benefit of focus. It is a food company that has to make decisions about where to invest capital. We can beat it in some markets because our focus is solely on milk.”

Critics of the merger suggested the industry would not have the capital to invest in further processing and adding value. Norgate says it is not an issue.

“Fonterra starts out with a strong balance sheet, and the rate of growth in the number of dairy farms in the country should attract $1 billion over the next four to five years.” There is still plenty of land suitable for dairy conversion – if the economics are right, he says.

But more dairy farms does not equate to cheaper milk. “There is still a generation that remembers subsidised milk. But international milk prices have gone up and so domestic prices follow.”

Once there were farmers who supplied milk exclusively for the domestic market; now all the milk goes into the same vat. “You can’t tell a farmer that he’s forced to sell his milk on the domestic market and get less than farmers producing milk for export. The only way to keep prices at artificially low levels is for the Government to subsidise farmers to ensure domestic supply or for the Government to regulate, which would mean farmers would be the ones subsidising the ‘townies’.”

Norgate sees technology as holding the key to the nation’s future — software and services that aren’t affected by our distance to market. But, he says, New Zealanders need to embrace the fact that our internationally competitive pastoral industries are the backbone of the New Zealand economy. And that there is money to be made in commodities, particularly if we’re the lowest-cost player in the market.

“We’ll always have the land to fall back on, but we need to develop new industries. We’d be crazy to turn a blind eye to the opportunities technology — including genetic engineering — offers. We need the ability to develop technology then decide what to do with it. It wouldn’t take much for another country to decimate New Zealand’s opportunities.” But Fonterra will be sticking to its milking.

“Our real advantage is in producing milk and the technology with which we can develop products from milk. Our future focus will be developing new ingredients and food products from milk.”