Fonterra shaves 50c off forecast milk price
Fonterra has dropped its forecast milk price mid-point by 50c as a surge in global milk production is putting downward pressure on commodity prices.
Fonterra shareholders could end up losing over $1 billion on the co-op’s controversial investment in Chinese infant formula company Beingmate, says business commentator Rod Oram.
This includes announcing an impairment of $405m at the half year, as well as $28m to account for its share of Beingmate’s losses.
“As we’ve said previously, the performance of this investment is unacceptable,” a Fonterra spokesman told Rural News.
“Our priority is pushing for an urgent business transformation by working cooperatively with Beingmate’s founder and majority shareholder.
“There are a number of opportunities to reverse the business’ current performance, starting with unlocking the distribution network and meeting customers’ preferences for e-commerce.”
The first step of the transformation is the appointment of a new and independent chief executive officer, supported by a strong senior management team.
Fonterra denied that Sam Xie has returned to the company as chief executive of Beingmate Baby and Food Company in which Fonterra has a 18.8% stake.
Commenting on the strategic objectives of its tie-up with Beingmate, Fonterra says any global company wanting to have a long-term, sustainable business offshore “needs to approach their partnerships collaboratively and strategically”.
Fonterra says for its business in China that means sharing knowledge and experience to improve local food safety and quality standards, investing in the local dairy industry as it has with its China farms, and partnering with a Chinese company.
“The performance of the Beingmate investment has clearly been disappointing; however it has played a strategically important role in enabling us to operate in the China market, where we achieved $3.4 billion in sales revenue last year.”
Fonterra also refuted claims that it had been taken for a ride by Beingmate founder Sam Xie.
“Doing business with China has always come with unique challenges and Beingmate’s performance has been clearly disappointing.”
The co-op says its extensive due diligence before it invested in Beingmate drew on internal and external advisors’ expertise.
“The due diligence outlined a number of significant opportunities which continue today,” the spokesman says.
‘It’s important also to view our investment in Beingmate as part of a long-term, strategic plan to grow in the China market.”
