Fonterra promises $22 million for 2004 payout from Nestle venture

11.00am

New Zealand's 13,000 dairy farmers will not see any financial gains out of their dairy company's biggest business deal -- a joint venture with multinational food giant Nestle -- until next season.

But when they do, the joint venture with Nestle, Dairy Partners Americas, should pay Fonterra $22 million in the first year, Fonterra chief executive Craig Norgate says.

"A year ago, when the deal was announced, most thought we would be up for an enormous amount of money -- indeed some of the so-called 'expert' commentators felt we wouldn't be able to fund it," Mr Norgate said today.

"The reality is that the businesses we have built in recent years in Venezuela and Central America were so good that the first stage of the alliance will result in a payment to us of over $300 million," Mr Norgate said in notes prepared for the company's first annual meeting today, at Hamilton.

"We now believe we will be able to implement the alliance, in all parts of the Americas, from Mexico south, at no additional funding from Fonterra," he said.

"This will create a business -- with turnover of over $3 billion in its own right -- that is the market leader in every country it operates in.

"From the 2003/04 season, we will start to see the joint venture's earnings kicking in, with an additional $22 million expected in the first year.

"You will see that contribution to your income grow, season-by-season," he said.

"Depend upon it."

Nestle SA, the world's biggest food company, signed an agreement with Fonterra in March to create an alliance for dairy goods in North America and Latin America.

Dairy Partners Americas will create joint ventures for dairy products such as yoghurt, desserts and milk, but infant formula, evaporated and condensed milks, certain specialty products, cheese and butter are not included in the alliance.

The partnership is forecast to have first-year sales of US$1.4 billion ($3 billion), and to become the largest seller of chilled and liquid dairy products in Latin America, one of the world's fastest growing dairy markets.

But Nestle said when the initial talks for the deal were announced in August 2001 that the biggest opportunities for the tie-up were in North America, where neither was "strong enough". Mr Norgate did not say in today's speech how much cash Fonterra would be expected to contribute to the venture in the United States and Canada.

The companies expect to benefit from purchasing savings, cost efficiencies from using each others' assets, and better use of distribution, manufacturing and research and development.

About US$100 million ($214.68 million) of dairy produce is sold in North and Latin America a year, and the venture's immediate priority is to complete joint venture arrangements in Argentina, Brazil, Paraguay, Uruguay and Venezuela.

Fonterra chief financial officer Graham Stuart said recently the venture would start in Brazil, Argentina and Venezuela, where commercial terms had already been negotiated, and that Fonterra expected to assemble the necessary businesses and statutory timetables in those countries by Christmas this year.

- NZPA