Commentators squawked, what sort of company would sell its leading brands? What about two decades of pitching to us it was investing billions to add value to products, moving away from bulk commodity exporting?
Others wondered aloud why Fonterra couldn’t be another Nestle. Surely it has the market power and the privileged start.
And isn’t its new pitch to prioritise its ingredients and foodservice sales channels in a business-to-business approach just a fancy way of Fonterra saying it really wants to export commodities after all and jettison the capital-hungry consumer side of manufacturing?
Fonterra would say “no” to all that. In fact, it is undertaking to direct more of its milk into added-value dairy proteins and other “advanced solutions”, cashing in on its globally-recognised expertise in dairy science and innovation.
While the magnitude of the divestment idea has bewildered some and surprised even its own shareholders, there are other ways of viewing it.
That sharemarket analyst will be delighted at the prospect of new investment opportunities for his clients if parts of, or all the business goes on the block. An initial public offering (IPO) is one of Fonterra’s options. Kiwis, not just the dreaded potential “foreign buyers” social media claims, could be part of the action.
Fonterra’s 8000 farmer-owners could be in for some handsome capital returns.
And it could be a welcome sign Fonterra is maturing. After 23 years of growing pains and dramatic swerves in strategy – there was the ill-fated drive to build global milk pools, reported to have lost farmers $2 billion of share value, only for the company to now focus on the provenance and reputation of New Zealand milk – maybe the business has realised it can talk a big game but can’t commercially be all things to all people.
Milk volumes are declining and Fonterra is fighting for its future.
As one seasoned insider put it, a co-operative is not a natural home for a capital-intensive consumer strategy. Co-ops were a “transactional business” and adding value to products created a “huge” problem in how that value was recognised for farmers.
It must be remembered that Fonterra’s reason for being is to return the highest milk price possible to its farmers. This results in a ceaseless tension with achieving commercial returns on investment.
Something has to give.
