Originally Posted by
nizzy
Fonterra has a substantial Ingredients business. It has real scale, is respected globally and generates probably 70% of EBIT for the Co-op.
Most of the world's food industry is made up of similar ingredient companies supplying other food manufacturers, who in turn combine them to produce a finished good. Complex global supply chains which Fonterra is really good at.
Only about 20% of Fonterra's Ingredients are pure "commodities" sold on GDT .
Most milkpowders, proteins, fats etc are sold off GDT in direct B2B contracts with food manufacturers. Almost all of these sales generate returns above the basic GDT. Customers will pay premiums for such things as delivery schedules, tighter specs, specific packaging, finance arrangements, etc etc , all extra services not offered on the GDT. The margins aren't as high as Food service or Consumer but can be very respectable.
The challenge is moving ever higher % of the milk into higher margin.
Building big consumer brands is so much harder today that even 10 years ago with disrupted traditional channels, social media, supermarket power, etc - even the really big players like Nestle or Unilever are finding it tough.
But Foodservice is a real winner for Fonterra - it uses a lot of the Ingredients expertise (technology, R&D, B2B sales techniques, scale logistics) with brand. Try Googling Anchor Foodservice Professionals. :)