Opposition puts paid to Fonterra Chile plan

Fonterra has dropped plans for a merger in Chile between subsidiary Soprole and Nestle after opposition from local farmers and politicians.

Fonterra in November said it planned to expand its Dairy Partners Americas (DPA) joint venture with Nestle into Chile.

Fonterra's 99.8-per-cent-owned subsidiary Soprole and Nestle Chile filed an application with the competition authority in Chile seeking approval for a joint venture between parts of their businesses that would have had annual sales of about $770 million.

Fonterra chief executive Andrew Ferrier yesterday said the application had been withdrawn.

"There were a range of objections, primarily from local dairy farmer organisations who were concerned that this could lead to a concentration of milk purchasing, giving them less options on who they could sell their milk to," he said.

In Chile, a powerful grouping of a dozen senators recently presented to the agriculture committee of Chile's Senate a draft agreement to categorically reject the merger. The text, which has not yet been submitted for consideration by the Senate, argued that the merger would damage competition among companies in the sector and negatively affect dairy farmers.

Chile's Agriculture Minister, Jose Antonio Galilea, this year criticised the proposed merger and said an "excessive concentration of certain industries" would naturally end up affecting producers.

Chile's national economic prosecutor, Felipe Irarrazabal, said the merger "in the opinion of this office" was not positive and mitigation measures were not sufficient to offset the risks.

The president of the National Federation of Milk Producers in Chile, Dieter Konow, warned that a company such as Soprole which controlled about 60 per cent of the market "is free to set the prices for both sales and purchases of dairy products ... it is not good to a social market economy".

Ferrier said Soprole would focus on growing its consumer business in Chile.

"Soprole already has a very strong position in the Chile market and has been posting strong growth in recent years. The team is now focused on building on that strong foundation."

Fonterra and Nestle had no plans to present a new application to authorities in Chile, he said.

DPA was established in 2002 to set up joint ventures between Fonterra and Nestle, and operated in Brazil, Argentina, Venezuela, Colombia and Ecuador.

"The DPA joint venture is working well and we are growing sales and returns in the strongly growing Latin America market," Ferrier said.

Fonterra in November said the proposed DPA-Chile joint venture would be the next step in DPA's business strategy for Latin America. Soprole would have contributed the larger business to the joint venture and so Fonterra would have received about $300 million had it been established.

Ferrier said: "We are disappointed that Chile will sit outside this joint venture, but then both businesses are good performers and will continue to contribute to shareholders' returns."

- Additional reporting: NZPA