Tuesday, 28 May 2024 07:55

What's in it for us?

Written by  Sudesh Kissun
Iconic Fonterra brands like Anchor could be sold within 18 months. Iconic Fonterra brands like Anchor could be sold within 18 months.

Fonterra farmers are keen to know what the co-operative's surprise divestment plan will deliver for them, says Co-operative Council chair John Stevenson.

The council, which represents the interests of the 9200 shareholders, has been briefed by Fonterra's board and management.

Stevenson says councillors have also received "a significant number of phone calls" from farmers following the announcement.

"Farmers are interested in what outcomes this announcement will deliver for their co-operative and for them," he told Dairy News.

"Some farmers have spoken of their strong connection to iconic brands like Anchor and Mainland that have a long history in NZ. Others have spoken of the importance that Fonterra delivers a strong return on the capital that farmers invest in ownership, and that these returns need to be in excess of the cost of that capital to farmers."

Fonterra surprised its farmers shareholders, and politicians, by announcing that it is looking to sell all or part of its global consumer business as it shifts its focus to becoming a global business-to-business provider of dairy nutrition products.

The co-op's consumer business brands included Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano and others.

Those brands used about 15% of the co-op's total milk solids and represented about 19% of its underlying profit in the first half of this financial year.

Fonterra chief executive Miles Hurrell says the co-op could increase its value to farmers as a business-to-business dairy nutrition provider.

Some analysts believe the sale could fetch Fonterra up to $4 billion. This could allow the co-op to return capital – around $2/share – to its cash-strapped farmer shareholders.

For Fonterra farmers, the announcement is big news, says Stevenson.

“It represents a significant change to the future shape and direction of our co-operative. At this early stage we are working on getting our heads around the detail.

“Fonterra has told us that this announcement will take complexity out of the business and allow Fonterra to focus on the engine room of the business, the ingredients and food service channels.

“Council will be looking to understand the detail of this announcement, including how these changes will grow more value in the long term and what impact this step change in strategic direction has on future internal investments.”

Stevenson says it’s “really important" that Fonterra takes farmers on the journey, so that when it comes time to make a decision farmers understand the full implications.

Fonterra’s announcement also surprised politicians.

Finance Minister Nicola Willis told Dairy News that she would be seeking more information from the co-op to “understand it better”.

“I know that they are looking at a strategy that allows them to add value. Releasing capital from their consumer business will allow them to use the capital in R&D and add further value elsewhere.

“I want to meet Fonterra and get more information from them.”

Labour’s ag spokesperson Jo Luxton says she was surprised and is also seeking a meeting with Fonterra to get more information.

Fonterra expects to continue supplying milk to the consumer brands through its ingredients business.

“We believe we can grow further value for the co-op by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing ingredients and foodservice channels,” Hurrell says.

“This will be enabled by strong relationships with farmers, a flexible manufacturing and supply chain footprint, deeper partnerships with strategic ingredients customers, further investment in our Foodservice channel, continued delivery on our sustainability commitments and investment in innovation.”

The divestment of its consumer businesses could also include integrated businesses, including Fonterra Oceania and Fonterra Sri Lanka.

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