Fonterra is forcing its contractors who do maintenance to drop their prices in a 'Dragons Den' style process.
Fonterra is asking its contractors to undergo 'rapid negotiation rounds'. Photo: RNZ/Sharon Brettkelly
Documents given to RNZ News show a letter was sent to companies asking them to prepare for a meeting where they would be required to re-pitch for the dairy giant's business.
The letter dated February said Fonterra was making significant changes to the way it did business and was trying to cut its overall maintenance spend by 20 percent.
It asked contractors to send in their current and proposed prices and selected vendors would take part in a one-day meeting to be held this month.
They would go through what Fonterra described as 'rapid negotiation rounds' where each business had 20 minutes to make its pitch.
The letter said Fonterra would decide on the successful bidder at the end of that day-long meeting and contractors should be prepared for the outcome.
It also acknowledges that it would be a hard letter for suppliers to receive.
The latest revelation comes off the back of a $409 million profit in the six months to the end of January, compared with $183 million in the same period a year ago - an increase of more than 120 percent.
Fonterra also said that globally it had benefited by between $50 million and $70 million from its policy of extending the time it took to pay firms that supply it with goods and services from 30 days to 90.
The move has been controversial and yesterday the Prime Minister John Key weighed in on the topic saying Fonterra's strong result showed it could pay its suppliers on time.
Mr Key said the company is using its strong balance sheet to support farmers through dividends but it should also deliver to contractors.
A supplier who did not want to be named told RNZ News Fonterra were playing one contractor against another and that it was corporate bullying.
He questioned whether it was acceptable for Fonterra to make multi-millions of dollars from delaying payments and he believed a lot of contractors who did work for the dairy co-operative would be looking for alternative streams of work over the next year.
The man said he had no problem with the co-operative making a profit but questioned the way it had been achieved.
"You've made the profit at the expense of your creditors and your trades people, it just doesn't wash and it won't wash very well with people. I'd like to think that some of that profit that they've made will benefit the dairy farmers."
He said the delay in payments meant money gets tight, particularly if the business has had to front up with a large sum for supplies to carry out a job and that it is not unusual to do a $40,000 job where it has to bring in $20,000 worth of materials before the job is started.
"You've actually paid for the materials before you start the job and the balance is overheads and wages and you've got to wait 90 days, unacceptable."
He said his business would have to review its pricing as Fonterra pits one contractor against another.
Yesterday at the half-year results announcement the company's chair, John Wilson, acknowledged it had handled the matter badly, but Fonterra will not back down on the delayed payments.
The payment terms have been in place since 2011 and were rolled out completely in New Zealand late last year.
Fonterra has 20,000 suppliers globally and 8,200 in this country and about 1000 of those New Zealand suppliers were required to swallow the late payments.
Fonterra has been contacted for comment on the letter sent out to suppliers.