On this episode of The Strong Source Podcast, we speak with Richard Allen, President of Fonterra’s Global Ingredients Business. From price volatility to market transparency, Richard shares how the world’s largest dairy exporter is responding to global pressures — and how procurement leaders can better manage risk, foster long-term partnerships, and navigate the evolving commodity landscape.
Below is a snapshot of the conversation — covering everything from price risk management to the myth of “skipping the cow.”
Dairy has a reputation for being extremely volatile. What does that mean in practice — and how does Fonterra manage it?
“Volatility in dairy is not just a perception — it’s real. Whole milk powder, for example, can swing a thousand dollars per metric ton in a matter of months. That kind of price movement creates big challenges for procurement teams trying to manage budgets or secure supply.”
“But we’ve been building capabilities to manage that for over 15 years now. It’s not just about managing risk for ourselves — it’s about building tools to help our customers do the same. Because if they can’t manage their input costs, they’ll look to substitute, and that’s a lose-lose situation.”
So how do your customers typically manage this kind of price risk today?
“More and more of our contracts are indexed — meaning the price is based on a transparent, mutually agreed benchmark like GDT. It takes a lot of tension out of the commercial relationship. You’re not constantly renegotiating price or locked into an outdated number.”
“I always say, in a long-term partnership, you can’t have one party winning and the other losing. Index-linked pricing allows both sides to stay close to the market and focus on value creation, not price fights.”
Dairy derivatives exist, but they’re still relatively illiquid. Why do you think that is — and what’s Fonterra doing to change it?
“It’s true — dairy’s derivative markets haven’t scaled as fast as some other commodities like grains or energy. But things are changing. Skim milk powder, butter, whole milk powder — we’re starting to see growing liquidity, and that’s a good sign.”
“At Fonterra, we’ve been building this for years. We have a full commodity risk and trading team that’s in the market every day — hedging, helping customers, working with brokers. We’re not just observing the space, we’re actively shaping it. The goal is to build a mature ecosystem where price discovery and hedging are second nature — for everyone.”
There’s a growing narrative around “skipping the cow” — that dairy isn’t necessary. What’s your view?
“I think it’s a really simplistic take. Look, there are functional replacements for some aspects of dairy — fats or proteins in certain formulations. But dairy isn’t just a commodity input. It’s a complete source of nutrition, rich in essential amino acids, vitamins, and minerals. You can’t replicate that easily.”
“And let’s not forget taste. Gordon Ramsay might do a commercial saying ‘skip the cow,’ but if you’ve watched him cook, you know he loves butter. So do consumers. Yogurt, butter, even fluid milk — they’re all growing again.”
“And beyond food — dairy is everywhere. It’s in pharmaceuticals, infant formula, even adhesives. Many people take pills held together by dairy-derived lactose and don’t even know it. That’s the part people often miss.”
How do you personally navigate uncertainty — from COVID to supply chain shocks to today’s geopolitical disruptions?
“I won’t lie — it’s intense. But over time, I’ve learned to rely on processes, not predictions. At Fonterra, we’ve built strong scenario planning muscles. During COVID, when everything was chaos, we learned how to update our supply and demand plans almost daily. That agility is now embedded in how we work.”
“Personally, I keep a document I come back to every quarter: a kind of personal brand charter. What do I want to be known for? What kind of leader do I want to be? If I have a bad day or show up wrong, that helps me reset.”
“You’re not going to get everything right. But if you’re grounded in purpose and honest with yourself — and your team — you can course-correct quickly. That’s how you survive long-term in this business.”
👉 Want to hear more?
Richard also shares insights on team building, global sales leadership, and how dairy procurement is evolving across regions:
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What is the Strong Source Podcast?
Our mission with the Strong Source podcast is to educate and inform, by creating a community where experts and guests from the entire commodity industry can share their unique perspectives. Martijn Bron, ex-cacao trader, and Alexander Sterk, ex-dairy trader and founder of Vesper, have a deep-passion for this industry, which inspired
