Applied Economics: Fonterra and the Dairy Industry Overview

Running head: APPLIED ECONOMICS
Applied Economics
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1APPLIED ECONOMICS
Table of Contents
Brief History and Current Overview of Fonterra and the Dairy Industry:.................................2
Economic Growth:.....................................................................................................................3
a:.............................................................................................................................................3
b:.............................................................................................................................................4
c:.............................................................................................................................................4
Globalisation and International Trade:.......................................................................................5
a:.............................................................................................................................................5
b:.............................................................................................................................................6
International Finance and Exchange Rate Determination:.........................................................6
a:.............................................................................................................................................6
Globalisation and monetary policy:...........................................................................................7
Globalisation and fiscal policy:..................................................................................................7
Reference:..................................................................................................................................9

2APPLIED ECONOMICS
Brief History and Current Overview of Fonterra and the Dairy Industry:
Among many renowned co-operatives in New Zealand, Fonterra and the Dairy
Industry is one of the largest one operating in the international dairy industry. It is known for
its vast amount of multinational operation in in the collection, manufacture and sale of milk
and milk-derived products and in fast-moving consumer goods (FMCG) and foodservice
businesses. It operates through five segments: Global Ingredients and Operations (GIO),
Oceania, Asia, Greater China and Latin America. GIO processes and distributes milk, sells
and markets milk products. Oceania includes FMCG businesses in New Zealand and all
FMCG and ingredients businesses in Australia (Fonterra.com 2018). Asia includes FMCG
and foodservice businesses in Asia, Africa and the Middle East. During 1871, first co-
operative in the country has been developed in Otago and by the end of 1920, there were
more than 600 dairy processing factories out of which 85% are owned by the co-operatives
making it one of the largest source of dairy products related jobs (Editorial 2018). During
post World War II, it can be seen that consolidation came in and many co-operatives starts to
merge each other in order to form larger firms that can control the market of the dairy
products in New Zealand as well as in the other western nations too. Fonterra and the Dairy
Industry was formed during 2001 through the merger of two largest co-operatives in the New
Zealand which are Kiwi co-operative Diaries and New Zealand Dairy Group with the New
Zealand Dairy Board which is known for exporting and marketing agent for cooperatives
(Rbnz.govt.nz 2018). Under the market structure of the dairy industry in the state, Fonterra
and the Dairy Industry effectively gained monopsony power that aided the firm to control
export and domestic dairy industry. Though under controlled export of dairy products was
existing during the late 90s in New Zealand, however, easing of regulation in the subsequent
years has allowed every firm to export the same that enhanced the market share and market
power of the Fonterra and the Dairy Industry. Since 2005 the brand has been making

3APPLIED ECONOMICS
headlines with its large amount of business growth through business undertaking of the
domestic as well as the foreign firms. Large factories were purchased by the Fonterra and the
Dairy Industry in Australia during 2005 from Nestle, which is one of the largest dairy product
producer in Australia (Hutchinson 2016). As the mean of continuous growth of the firm,
since 2007 Fonterra and the Dairy Industry goes under two year consultation program which
was aimed to perform capital restructuring that focused on stopping the continuous washing
of large amount of money from the balance sheet of Fonterra and the Dairy Industry
germinated through the milk production fluctuation (Munir et al. 2015). During 2010
Fonterra and the Dairy Industry introduced a program called Trading mong Farmers which
was aimed to enhance the interdependence of the farmers and the resolution passed with 89%
support sealing the amount of damage to the firm under fluctuating milk production situation,
which is acknowledged as the outcome of the capital restructuring program (Labbe 2017).
Economic Growth:
a:
Fonterra and the Dairy Industry is one of the largest producer of the dairy products in
New Zealand and the main driver that has aided it to become so is the strong supply chain of
the same. During 2013 the firm has introduced a opaque milk container code named “game
changer” which is arguably can keep milk fresh for two weeks. It has aided the firm to
operate long distance transportation without messing with the quality of the milk and has
aided the firm to face 1.9% growth in its sales figure (Pavlovich 2016). With the keen focus
on the effluent management structure of the firms operating under Fonterra and the Dairy
Industry, the organisation has maintained its production and quality that has helped it a lot to
become where it is now.