Cool reception greets dairy alliance

By MIKE SMITH

The global alliance between New Zealand's Fonterra Cooperative Group and Nestle SA has received a less than warm reception in Chile.

Not only has the alliance created an outcry among dairy farming groups, but it has focused the concerns of anti-monopoly groups, which are worried by attempts by big companies to force down the price they pay for milk.

The announcement that Fonterra, the newly formed giant New Zealand dairy cooperative, and Nestle were to forge an alliance in the Americas was made in late August and was immediately greeted with apprehension by dairy producers and consumer groups in Chile.

They are concerned because Fonterra owns 51 per cent of Soprole, one of the four major players in the Chilean dairy industry, which has a 26 per cent share of sales in the Chilean market.

Fonterra's new partner in the Americas venture, Nestle, has 21 per cent of the market, giving the alliance a combined 47 per cent share.

Together Fonterra and Nestle will form a conglomerate with combined sales of $US350 million ($842 million).

The Fonterra-Nestle announcement came at a time of conflict between the dairy companies and milk producer groups in Chile.

A decision by the companies to lower the price they pay for milk, from 120 pesos (about $0.41) a litre to 105 pesos a litre has upset the producer groups and led them to take a case to the country's Anti-monopolies Commission.

The commission responded by freezing the price at 120 pesos, until November 15, and the Court of Appeal in Santiago rejected a bid by the alliance partners to overturn the commission's decision.

Chile's President, Ricardo Lagos, has intervened in the dispute, arranging a meeting between the leaders of the dairy producer association in the regions of Valdivia, Osorno and Llanquihue and the National Federation of Milk Producers.

Dairy farmers' anger is directed not only against the companies themselves, but also against New Zealand, as the world's largest exporter of dairy products.

This resentment was apparently a major factor in an incident in August when demonstrators threw eggs at a New Zealand delegation led by Agriculture Minister Jim Sutton while it was in Osorno, Chile, to attend a meeting to negotiate a free trade agreement.

The alleged dominance of Fonterra and Nestle has already led another player, Italian-based Parmalat, to withdraw from the Milk Industries Association (Asilac).

Parmalat has also withdrawn from similar associations in Venezuela and Colombia, where the alliance partners also plan to operate. Parmalat has only 6 per cent of the Chilean market.

Chile's major producer group is Fedeleche (the National Federation of Milk Producers). Its president, Jorge Alamos, said the coalition between Fonterra and Nestle was disastrous for producers, because the deal would allow the companies to intensify their businesses, contrary to the principles of free competition, with serious damage likely for producers and consumers.

The president of the Fonterra company, Soprole, Alfonso King, said the two partners would bring together their plants, distribution systems, brands and product lines, starting at the beginning of next year.

Asked about monopolistic concerns, King said there was no difficulty in this case. The Chilean authorities would rule on the issue and hold the companies to any anti-monopolistic conditions imposed.

Soprole had been able to assure Fedeleche of the benefits the alliance would bring to the industry, such as genetic improvement, along with efficiency and productivity improvements.

Fedeleche's Alamos told local newspaper El Diario that preliminary discussions were being held between milk suppliers and the processing companies to avoid any unilateral action when the price freeze was lifted next month.

He said the price offered should reflect a balance between the international price and the internal demand.

It was also necessary to consider the question of free competition, because if producers sold milk to Soprole, they could not offer it to another company.

Soprole said urgent action was needed, because the higher price was an incentive for farmers to produce more milk, which was distorting the local market.