John Stevenson, chairman of the Fonterra Co-operative Council. Photo / Supplied
John Stevenson, chairman of the Fonterra Co-operative Council. Photo / Supplied
Fonterra’s farmer-owners will have “an acute interest” in where funds go from any sale of its global consumer business, says the dairy company’s farmer watchdog council.
The company has indicated it will seek farmer-shareholder support for any divestment within its $3 billion revenue consumer business.
Fonterra Co-operative Council chairman JohnStevenson said to make an informed decision about any such proposals “we’ll need a lot more information”.
“We’ll be pushing Fonterra to make sure there is a significant engagement process. As farmers and owners we will be looking to understand what our co-operative looks like [after] any divestment and where the value is going to come from,” he said.
The company will be looking to the council to support any proposal. It represents the interests of Fonterra’s about 8000 farmer shareholders.
Stevenson said the council and shareholders would expect Fonterra “to be really, really clear” on how funds from the sale would be used before they were called to vote on proposals.
“And that will be our feedback to the board.”
Farmer-shareholders received an $800 million capital return from last year’s sale of Fonterra’s Soprole business in South America.
The announcement by New Zealand’s biggest business and dairy export leader that it was appointing advisers to help assess sale options for its global consumer business and integrated businesses Fonterra Oceania and Fonterra Sri Lanka, would have surprised many farmers, Stevenson said.
They were aware of market analyst calls for Fonterra to sell some of its non-core businesses, but probably weren’t expecting “an announcement of this magnitude”.
Fonterra has said it believes it can grow further value for the company by focusing on being a business-to-business dairy nutrition provider through its ingredients and food service supply channels.
Stevenson said farmers would need to understand what further investment would be required by Fonterra to fulfill its newly announced goal.
The sales assessment process is expected to take 12-18 months.
Fonterra’s consumer product range includes fresh milk, cheese, yoghurt and butter under well-known brands such as Anchor, Kapiti, Mainland, Anlene, Anmum and Perfect Italiano.
In FY23 the consumer business contributed $3.3b in revenue and $781m in gross profit to Fonterra’s books.
The sales channel represented 7 per cent of the co-operative’s New Zealand milk solids sold.
Its brands are most prominent in New Zealand, Australia, Sri Lanka, China, and Southeast Asia.
In FY23 the ingredients business represented 80 per cent of the co-operative’s New Zealand milk solids sold, and returned $17.4b in revenue. This channel offers high quality milk powders to premium proteins through the auction platform Global Dairy Trade, resellers and customers.
A stretch test of mozzarella cheese is made at Fonterra's Clandeboye site in South Canterbury. Photo / Chris Tobin
The food service business that year represented 13 per cent of New Zealand milk solids sold, and returned $3.9b.
It offers products such as UHT cream, cream cheese and mozzarella to restaurants, bakeries, and the hospitality sector.
Stevenson said farmer-shareholders understood the amount of invested capital they had in the consumer businesses and “will have an acute interest in where those funds go”.
“They’ll be looking carefully to understand what this means for them.”
Stevenson acknowledged that Fonterra had had to declare impairments on some of the consumer businesses but wouldn’t go as far as saying the company hadn’t done a good job of running them.
“These businesses can be capital-hungry. When you’re competing against people with big balance sheets, I think the thing to bear in mind that in the context of raising capital and putting the required capital into the consumer business to compete effectively, is more challenging within a co-operative context.”
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.
