Expansion chances for Fonterra

By LIAM DANN primary industries editor

The dramatic collapse of Parmalat - one of the world's biggest dairy companies - opens up intriguing expansion possibilities for Fonterra.

The New Zealand dairy giant has already made it clear it wants to expand its international operations this year.

Parmalat was declared bankrupt on Thursday and the impending fire sale of its subsidiaries around the world could not have come at a better time for Fonterra.

Chief executive Andrew Ferrier has said that Fonterra will pursue an aggressive growth strategy this year which will include global acquisitions. "We're looking," he said.

Fonterra wants to buy companies with well established consumer brands in markets where it sells only bulk milk powders.

Fonterra chairman Henry van der Heyden said yesterday the company was watching the Parmalat story very closely.

"It's still too early to know whether the situation will present opportunities for Fonterra."

He is no doubt keen to avoid jumping the gun and thrusting Fonterra into the global spotlight as bidders position themselves to pounce on Parmalat's remains.

Across the Tasman there is already speculation that the Italian company's demise will kick-start a long-awaited consolidation of the Australian dairy sector.

This is despite Parmalat Australia - the third largest player in that market - maintaining that its business is stable and not for sale.

Those protests have not stopped the vultures circling.

Australia's largest dairy company, National Foods - in which Fonterra holds an 18 per cent stake - has already declared itself a potential buyer, as has number two player Dairy Farmers.

Fonterra's stake in National Foods coupled with its 50 per cent holding in Bonlac - Australia's number four dairy company - means it does not have much scope to get directly involved without attracting the attention of competition watchdogs.

But there are other prospects around the globe.

Parmalat has subsidiaries throughout Fonterra's preferred expansion areas - Asia and South America.

In South America, Fonterra's joint venture with Nestle already has operations in Brazil, Venezuela and Argentina.

Working with the world's biggest dairy company, Fonterra will be in a powerful position to mop up Parmalat operations in the region and leapfrog into markets such as Mexico, Chile and Colombia.

Parmalat also has businesses throughout Southeast Asia and China, all of which present Fonterra with opportunities for expansion.

The only question now is how long it will be before the selling process gets under way.

Parmalat investors are understandably keen to wait until the financial mess is fully unravelled.

Unfortunately, there are some very big banks that may not be so patient.