Despite Fonterra's $605m losses, an economist previously critical of its business strategy is cautiously optimistic about its future and says the latest report is one of the best he's seen.
New Zealand's largest company, Fonterra revealed the co-operative's $605m loss in its annual results yesterday after a delay early this month, and announced plans to close its Paraparaumu cheese plant affecting 65 jobs.
It also announced a $6.35 per kilo of solids milk price, but no dividend.
Fonterra chief executive Miles Hurrell told Morning Report the co-operative's losses and change in strategic direction were not a failure.
"In fact far from it," he said. "If we look back to where we formed when the co-op was formed in 2001 ... we were paying our farmers roughly half of what the European or North American farmers would get, now we're paying on par."
However he warned there could yet be more cuts and changes.
"I think that people are suggesting that you simply go through, you write down a few things and then you move on. I mean, it's a very robust process and that's the reason we didn't get our accounts out on the day we expected.
"You can't simply just come up with 'here's a few assets, let's write them down and move forward', every asset gets looked at on the value, looks through the value that's gonna be generated."
The company's change in direction has been away from foreign investments, returning to valuing New Zealand milk and New Zealand farmers.
"I'm out visiting farmers Monday to Friday all next week right through the country and I'd be very surprised if farmers haven't already seen a change in culture.
"As we've seen this year, farmers are doing it tough and solidarity's come to the fore and we'll work on that basis."
The company is also planning to prioritise value-added products rather than just milk as a commodity.
"I think we recognise that milk is at a point where we're not going to see significant growth in a New Zealand context, but that creates an opportunity for us.
"Scarcity creates value. With relatively flat milk [supply] from here, how do we then turn that milk into high-value product? ... it's actually moving product out of a commodity cycle through into product where we've had a proven track record of delivering."
He was optimistic that the company would not need more external capital to stay afloat. He would not rule it out entirely, but did not want to second-guess the co-op's coming discussions with farmers about possible changes to its capital structure.
"We have access to capital, we've just taken on a bit much debt of late which has meant we've had to think about our structure and our business going forward," he said.
"We just need to be prudent with the capital we have, look at our debt position and continue to grow our business as a result.
Agricultural economist Peter Fraser has previously warned the co-op is on a "death spiral" towards foreign ownership and that there are more skeletons yet to see the light of day, but said he was now more positive about Fonterra's position.
"The way that I'd sum them up is they're 'fragile' and I think that's a pretty fair comment but the thing that I would say, I'm cautiously optimistic," he said.
"I'm still a bit sceptical, I've already outlined where I think there's some potential rot, ANZ have come out and pretty much came to the same sort of conclusion but ... the auditors have come in, they've said it's okay, we have to believe that."
He said he agreed there had been a change in culture, and despite the losses the annual results report was one of the best he had seen from the company.
"I agree with him, I've read a lot of Fonterra reports, this is one of the best ones I've seen. It's a lot less arrogant and dare I say it's even slightly humble in places.
"They say 'look, we missed our debt target last season', they're very clear about it - they didn't miss it by a little bit, they missed it by a country mile - ... they say 'but this is what we've done for this year'. So that gives me a lot of confidence that they are trying to walk the walk rather than just talk the talk."
The co-operative's reduction in debt levels was impressive, he said.
"Where they are at the moment with their gearing ratios is late 40s, and that's way too high and they admit that's way too high. Where they want to be by the end of this year is mid-to-late 30s."
The tricky part of the equation would be how they could achieve that, while also scaling up value-added products in line with their strategy.
"It's not clear how they're going to fund it - I hope it's through retentions ... money which they retain as earnings and they don't pay it out to either investors or to farmers. To put this into context if they keep back 10 cents that's $150 million."
For his part, Mr Hurrell said he was focusing on the next steps for Fonterra: reducing debt further, increasing earnings and focusing on the environment.
"Where we're planning for the year ahead we've got some modest earnings increases ... but at the same time we do have to continue to get our debt down.
He said 100 percent of Fonterra farms would have a farm environment plan by 2025, despite only 23 percent having one so far.
"Clearly there's a few laggards that exist and our job is to focus on those people, but the vast majority of farmers get up every day to make the lives of their farmers, their communities and the environment they operate in better than when they started."