Claire Trevett

Claire Trevett is the New Zealand Herald’s deputy political editor.

Fonterra plans for Latin America

Dairy co-operative's boss for region says company wants to expand into new areas

Fonterra MD for Latin America Alex Turnbull says the region's economies have improved. Photo / Supplied
Fonterra MD for Latin America Alex Turnbull says the region's economies have improved. Photo / Supplied

One of the unwritten skills in the job description for being Fonterra's director for Latin America is a tolerance for those important local business lubricants, aguardiente and tequila.

While in Colombia on the Prime Minister's trade delegation to Latin America Alex Turnbull, Fonterra's managing director for Latin America, had dined with Pablo, a Colombian businessman. They enjoyed a glass of aguardiente together - and Turnbull insists it was enjoyable.

"It was the good stuff - not that cheap stuff that students drink."

Alex Turnbull took over the job in August last year.

His credentials included 20 years of experience in the dairy industry, including time in Latin America. He also speaks fluent Portuguese after living in Brazil for 10 years.

He now has oversight of Fonterra's investments and trade in Latin America - the largest its ownership of milk processing company Soprole.

Soprole was its first investment in Latin America. Fonterra's interest in the firm dates back to 1986 and it raised its stake to 99.4 per cent in 2008.

Soprole is the second largest processor in Chile, producing milk powder as well as goods such as yoghurt, cheese and desserts.

Fonterra also has two farms in Chile - one of which Turnbull took the Prime Minister to visit in Puerto Montt.

The Chile farms were originally set up about 20 years ago to increase the supply of safe, good quality milk for Soprole factories to use.

It is also developing a pilot farm in Brazil which has 1000 cows born from embryos exported to Brazil from New Zealand. It will eventually have 2500.

Just as any region, Latin America has its challenges.

Turnbull says some markets remained highly protected and importation rules could change with little notice. In Colombia, for example, tariffs on dairy products range from 15 to 95 per cent.

"Economically, there is still variation across the region," Turnbull said.

"Venezuela has very high inflation, price controls, it's difficult to get foreign exchange out of the country for the goods and services we sell there. That's a very, very difficult environment to do business."

There were other obvious problems, such as the language barrier and some cultural subtleties "although not as extreme as Japan or China".

Then there is the not so obvious challenge that the good-humoured Turnbull himself has come a cropper to on a few occasions - sarcasm.

"Kiwis love sarcastic humour, but Brazilians just don't get it," he said.

"They don't do it, they don't get it. It comes across as offensive. I've stuffed up many times on that one."

Fonterra first turned to Latin America for trade in the 1970s after the European Union was formed, effectively blocking trade links with Europe. Latin America had a distinct advantage over countries such as China - they actually drank milk as a regular part of the diet.

Turnbull said it proved a wise move.

"Over time, the economies have improved and populations have grown," he said. "Brazil really turned around in the 1990s, Mexico is in a strong position, Chile has been stable for a long, long time and now Colombia and Peru are showing strong growth under strong leadership and good governance."

Fonterra aims to expand its investments in Latin America, both in terms of scope and space.

"We'd like to expand into new geographies. We are not in every country in Latin America, so would like to explore that."

Free trade agreements naturally help. But Turnbull is not getting too excited about Colombia President Juan Manuel Santos' statement that he would be interested in a free trade agreement until there is more detail.

"An agreement without dairy won't really be an agreement."

Colombia is trying to increase its own dairy production - and its interest in New Zealand is getting farming experience and technology to help improve its own agriculture industry. That too could be in Fonterra's interests.

Turnbull said there were 4.5 million cows in New Zealand, which produced 17 billion litres of milk a year. In Colombia, there were almost twice as many cows, but they only produced 6 billion litres of milk.

In Latin America, Fonterra has so far been spared troubles such as the melamine scandal that afflicted the part-owned San Lu brand in China.

Turnbull said while levels of milk production in South America was varied, the region had a long history of agriculture and there were good controls over the supply chain.

The country which offered the most potential growth to Fonterra was Brazil - albeit only by a nose from Mexico, which the Prime Minister's delegation also visited.

Milking it in Chile

Fonterra interests in Latin America:

* Owns 99.6 per cent of milk processing plant Soprole in Chile.

* Soprole is the second largest milk processor in Chile.

* It collects nearly half a billion litres of milk - about of Chile's milk production.

* Soprole also owns two farms in Chile.

* Fonterra has a milk processing joint venture with Nestle in Colombia, Dairy Partners Americas.

* Fonterra also has bases in Mexico, Venezuela and Brazil, where it is setting up a pilot farm which will have 2500 cows.

- NZ Herald

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_a2 at 12 Jul 2014 18:24:10 Processing Time: 483ms