Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
Businesses on the chopping block used 15% of the co-operative's total milksolids and represented 19% of the group operating earnings in the first half of FY24. It also includes Fonterra's iconic Anchor, Mainland and brands. The co-op says it will seek farmer shareholer support for the sale.
Fonterra chairman Peter McBride says this is a significant move for the co-op which will set it up to grow long-term value for farmer shareholders and unit holders.
"We have conducted a strategic review which has reinforced the role of our core business. This is working alongside farmers to collect a sustainable supply of milk and efficiency manufacture products valued by customers, to deliver strong returns to farmer shareholders and unit holders," says McBride.
Chief executive Miles Hurrell says the review has also given the co-op confidence in the role it plays in the dairy nutrition value chain, with one of its greatest strengths being the production of world-class, innovative ingredients for customers to take to consumers.
"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 out high-performing Ingredients and Foodservice channels.
"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.
"In this context, we are exploring divestment options for our global Consumer business as well as our integrated businesses Fonterra Oceania and Fonterra Sri Lanka," says Hurrell.
Fonterra's global Consumer business has grown over the years since Fonterra was formed and is performing well. It includes a portfolio of market leading brands such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano and others.
Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia. It comprises Consumer, Foodservice and Ingredients businesses. Fonterra Sri Lanka comprises Consumer and Foodservice businesses.
Hurrell says selling these assets would help create a simpler, higher performing co-op focused on its core Ingredients and Foodservice business and "doing what we do best".
"While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfil Fonterra's core function of collecting, processing and selling milk.
"Due to our co-operative structure, we believe prioritising our Ingredients and Foodservice channels and releasing capital in our Consumer and associated businesses would generate more value."
He says Fonterra also received "unsolicited interet in parts of these businesses, making now a good time to consider their ownership".
