Wednesday, 29 May 2024 10:55

Editorial: Fonterra's U-turn

Written by  Staff Reporters
Fonterra has announced plans to divest its consumer business. Fonterra has announced plans to divest its consumer business.

OPINION: Speaking at the Chinese Business Summit in Auckland last week, Fonterra chief exuecutive Miles Hurrell revealed that his phone was running hot over the weekend.

Everyone was keen to know more about the dairy giant's plans to divest its consumer business, which includes some of New Zealand's most iconic brands - Anchor, Mainland and Kapiti.

While Hurrell didn't reveal details about the phone conversations, chances are that he told the callers what he's been telling farmer shareholders and politicians - not a lot.

How the divestment plan unfolds will take 12-18 months to unfold. On the chopping block is the co-op's global Consumer business, as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka, easily valued at a few billion dollars. By doing a U-turn, Fonterra wants to end up with almost no consumer brands, very similar to Tatua, which has a small consumer brands business selling whipped cream and cream cheese.

Fonterra claims it can add further value for the co-op by focusing on being a business-to-business (B2b) dairy nutrition provider, working closely with customers through its high-performing Ingredients and Foodservice channels.

On NZ dairy company is already implementing this strategy very well. Waikato's Tatua Dairy Co-op paid a record $12.30/kgMS to its 100 farmer shareholders last year and it did this by producing mostly specialised dairy ingredients. Fonterra shareholders received a milk price of $8.22/kgMS.

So, could Fonterra end up as a bigger version of Tatua? Hurrell says they haven't thought of it in that context.

He adds that Fonterra is keen to make its ingredients business even stronger.

"If that's a parallel that's been drawn, that would be a compliment to Tatua, they've got a nice business."

Fonterra shareholders would love their co-op to match Tatua in the payout stakes.

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