Aussie milk 'not NZ milk'

The future of Fonterra in Australia

Dairy
GO YOUR OWN WAY: Fonterra Australia will need to raise its own capital as the co-op focuses on NZ milk.

GO YOUR OWN WAY: Fonterra Australia will need to raise its own capital as the co-op focuses on NZ milk.

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Fonterra Australia managing director René Dedoncker says Australia will have more independence from NZ as it looks for a source of investment away from the big co-op.

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Australian milk might be some of the best in the world but, Fonterra Australia's managing director says, it's not New Zealand milk.

The result is that a chunk of the local business is being put up for sale, with strings attached.

In statements this morning, the giant NZ cooperative announced that it was placing "a greater focus on our New Zealand milk".

Asked what that meant, Fonterra Australia managing director René Dedoncker said Fonterra had made clear choices around New Zealand milk and would be directing capital towards leveraging its provenance.

"I think Aussie milk is up there with the best in the world," he said.

"In Japan, for example, what they value is Tassie milk out of Wynyard and they sing the praises of it everywhere, and it wins awards in in Japan, so the quality of our milk is well regarded. But we're not New Zealand."

Fonterra would be emphasising those differences to global customers.

"In practical terms, they're making a big statement around how New Zealand milk will be differentiated from other milk players that also play in the international market," Mr Dedoncker said.

NZ milk would be positioned as having a clean, green pasture-fed approach to sustainability and provenance.

READ MORE: Fonterra Australia may hit the market

There may also have been another element in the Kiwi decision to distance itself a little from Australia.

Its annual results show the Australian ingredients channel was hit by "geo-political impacts" and Mr Dedoncker said the proportion of the company's products that were sold on the domestic market was increasing.

At any rate, he said, the decision would allow him the "independence" to seek direct investment in Fonterra Australia. It would, however, come with conditions.

Mr Dedoncker said Fonterra would not consider splitting the high-performing consumer business, which owns brands like Western Star, Perfect Italiano and Bega, from the less profitable ingredients and manufacturing side.

It's important news for dairy farmers because most of the milk Fonterra sources from farmers here is used to make ingredients.

The second condition of any outside investment would be that Fonterra retained a "significant stake" but Mr Dedoncker said it was too early to say whether that would need to be a majority shareholding.

An initial public offering was the first option Fonterra was considering but Mr Dedoncker said there were two other possibilities: a strategic partnership and private equity.

As far as the local dairy industry is concerned, few would qualify as suitable partners.

Saputo is still digesting the acquisition of Murray Goulburn and Bega bought Lion after the Chinese were rebuffed, leaving Lactalis as the most likely competitive suitor. That concept was quickly discounted by Mr Dedoncker.

"I have to say it's unlikely that a Lactalis would want to sit alongside a Fonterra," he said.

"The benefit of doing the work though, would be that strategic partners will emerge, and we will assess them based on their merits.

"We do believe that at face value of what we know today an IPO is the most executable option but, having said that, in the next two or three months leading up to Christmas, if those options are on the table, we will give them due diligence, and we'll make a call."

Mr Dedoncker said the investment approach would be decided before Christmas and the execution of it in 12 months.

Although capital was being redirected to the NZ operation, he said Fonterra was not backing away from Australia.

"Fonterra is committed to the dairy industry here, 100 per cent, yes," Mr Dedoncker said.

"This move we're making now is all about locking in the future for, not just our dairy farmers, and our factories, but all of our people.

"It is about bringing our potential to life and so, if anything, it's about more investment, more commitment, more confidence."

Mr Dedoncker said there was no prospect of any factory closures.

"The factories actually rely on each other," he said.

"We've got a really good story to tell and I think the last 12 months has demonstrated that it works.

"We've never been more tested than under COVID conditions and we've been able to feed hungry people, here and abroad, but mainly here, and we've not missed one single drop of farmer's milk. We're pretty proud of that."

Australian Dairyfarmers president Terry Richardson said Fonterra was important to the Australian dairy industry.

"Australian Dairy Farmers notes with interest the company's intention to divest the Australian business and as more information becomes available, we anticipate a process of consultation which will consider the needs of all stakeholders," he said.

"Time and time again Fonterra has reaffirmed its commitment to the Australian dairy industry.

"On this basis, Australian Dairy Farmers looks forward to the contribution Fonterra will continue to make to our industry and in particular to the dairy farmers in Australia who supply milk to the company."

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The story Aussie milk 'not NZ milk' first appeared on Farm Online.

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