Dairy workers under hammer

Dairy workers under hammer by Andrea Fox (New Zealand Farmers Weekly, 22 May 2006)

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The chilly winds of cost cutting are cooling relations between Fonterra and its manufacturing plant workers as the pressure grows for higher farmer payouts.

Dairy Workers Union national secretary James Ritchie says the cost cutting drive will make impending collective agreement talks difficult, and threatens to damage a costly and successful company-union initiative programme in the big plants called "manufacturing excellence".

The programme is designed to transform the plants of New Zealand's only truly global company into world-class operations, Ritchie says.

It has involved a "considerable" investment and has delivered "enormous" savings to Fonterra.

But a lot of work remains to be done.

"In our view (it's) a building programme, and what we've come up against this year is pressure on payout. We are seeing Fonterra moving into a cost cutting phase and that in our view is very dangerous.

"While we are partners in a programme to continually look for cost efficiencies, we think that is very much more a long term process than cost-cutting which comes in cycles depending on how payout is going."

The Fonterra Shareholders Council has put leaders of the farmer-owned giant co-op on notice payouts less than $4/kg MS are unacceptable.

The payout for the 2004-05 season is forecast to be $4.07/kg MS.

Ritchie says nearly 400 jobs have been lost from Fonterra plants around the country in the cost cutting drive.

The axe is now poised over salaried jobs in Fonterra, though no job cuts have yet been announced.

The recent announcement Fonterra cheese plants in Dunedin, Panmure in Auckland, and one at Eltham would close with the introduction of new automated packing lines was a surprise, though job losses to the new technology were expected, Ritchie says.

About 300 jobs were axed.

The union is not opposed to new technology, and members are very supportive of Fonterra's progress since its creation from an industry merger in 2001, he says.

"Fonterra has made good progress in building from three legacy organisations into one company which is a successful global business...and those challenges should not be underestimated.

"From members' point of view (the process) has been one in which resources have been adequate in terms of staffing, there has been good encouragement around issues of training and development, and opportunities generally for members.

"This last season certainly has been the most difficult from our point of view," he says.

A Fonterra spokesman rejected the suggestion cost cutting was threatening the manufacturing excellence programme.

Fonterra general manager of New Zealand manufacturing Brent Taylor says the excellence programme is ongoing and while "restructuring has a people impact that will have its ups and downs", it is a long-term project.

Fonterra has invested up to $2.5m in the programme each year for three years, he says.

Cost savings were significant but were difficult to quantify.

The union and company had a good partnership but there would always be calls from some for more money to achieve objectives.

But Ritchie says it is now difficult to get the resources to do jobs and worker morale and confidence is being undermined.

"If people all around are being made redundant there is a view, why am I participating in this initiative only do myself out of a job?

"While we appreciate the pressure from shareholders on payout, it's a very fine line between good, continuous improvement on cost efficiencies and damaging cost cutting, and we are concerned that in some cases this year, Fonterra has erred to damaging cost cutting."

Heading into a bargaining round, that could become a problem, Ritchie says.

"Our members have an expectation they should be well rewarded for all the efficiency savings from the programme, and have a reasonable pay increase and this is against company pressure on costs and shareholder returns.

"This is always the case of course but this year it seems the differences could be sharper."

Pay talks for the manufacturing plants start in August.

In September last year members were paid the results of a previously negotiated two-year agreement, a pay increase matching the consumer price index plus 1%.

A collective bonus was also negotiated based on a range of production and delivery targets.

The union has yet to determine its next claim. The length of the agreement has also still to be negotiated.

Job losses in dairy manufacturing have not been confined to Fonterra.

Billionaire Graeme Hart has also carved up the workforce in the course of folding his former New Zealand Dairy Foods, acquired from Fonterra, into the newly listed Australasian food company Goodman Fielder.

Ritchie estimates 150 jobs have disappeared with 40 tanker drivers and 17 workers at Marlborough Milk, the latest casualties.

The Marlborough region's packaged milk will now be transported from Christchurch, the union says.

Will plant rationalisation result in milk being transported huge distances to centralised plants and back to communities, a modern feature of the meat industry which has drawn fire from farmers citing inefficiency and high transport costs?

Ritchie says it's a risk, but he predicts with Fonterra apparently wanting to use all its stainless steel and transport costs so high, plants will continue to be well dotted around the country.

"We've seen the increasing development of the mega-sites but not necessarily at the expense of smaller sites."

However, he notes there is now "a lot of milk" at the top of the South Island that can't be soaked up by the Takaka and Brightwater plants.

And a reverse osmosis plant outside Blenheim takes much of the moisture out of milk before it is trucked to the giant South Island Clandeboye plant "a very long way".

While new technology has taken its toll on manufacturing-based jobs, the union has for the past 20 years not opposed its introduction, Ritchie says.

Instead, it tries to ensure new jobs are rewarding and safe, and workers are organised so the process flows well. The result is that the industry has grown and with it, union membership.

The union has 7000 members, up from 5500 three years ago. About 87% of members work for Fonterra.

"We've peaked for this part of our history, and we're losing members now. But we are optimistic and confident that overall the industry will continue to grow," says Southland-born Ritchie, 51, who became national secretary in 2003.

He makes a plea to Fonterra farmers - "please take a longer view of the health and wealth of Fonterra...whether payout is $4 or $4.20 makes not much difference to the strength of the company in 2011 or 2016."