Big dairy deal puts us on the map

European rivals have reacted with envy to news of the Fonterra-Nestle joint venture, says Fonterra deputy chief executive Chris Moller.

Believed to be New Zealand's biggest commercial arrangement, the deal had made customers, rivals and Governments in Europe take notice of the dairy newcomer, Mr Moller said in London after a trip to Brussels.

"Most of them have been utterly astounded that such a deal could be pulled together," he said.

"It really has come as quite a surprise to our competitors.

"To a degree, there's almost some envy that the Kiwis from the other side of the world have been able to stitch together such a deal with such a world-leading organisation as Nestle."

Fonterra's chief executive, Craig Norgate, said last week that the company hoped to have the first of its joint ventures in the Americas operating by early next year.

"We have to formalise the alliance, then we need to identify opportunities in the Americas for joint ventures that we both agree on," he said.

The North and South American dairy market had an estimated value of $US94 billion ($216.6 billion) a year, meaning Fonterra had plenty of scope to expand its $US2 billion share.

The US market was worth $US50 billion a year, and Brazil ($US10 million a year) and Mexico ($US9 million) were also significant, Mr Norgate said.



Mr Moller said meetings with European powerbrokers had become easier to arrange, and were better attended as interest in the new company and its activities grew.

"It's been interesting that often when we've been to Europe, particularly Brussels, we've asked for meetings and have sometimes found it a challenge to obtain those meetings.

"That's understandable - they know that we are coming to yet again present New Zealand's case as to why we would like lower duties, or lower export subsidies on their product, more access to their markets.

Now, he said, the response was more positive.



"The desire to have these meetings, and the turnout, the seniority and the breadth of the people attending has been indicative of the interest that everybody is taking in these developments.

"Customers, competitors and Government agencies are keen to talk, to listen and learn what developments we've been undertaking."

While the Nestle deal had yet to go through a due diligence process, Mr Moller was convinced it would proceed.

The joint venture will cover shelf-stable products, such as UHT milk, as well as refrigerated milk-based foods and beverages in supermarket chillers.



Mr Moller expected working with Nestle would lead to other overseas opportunities for Fonterra.

Former Dairy Board chief executive Murray Gough has also welcomed the deal.



The alliance gave even more proof that the Kiwis had it well over the struggling Australian dairy industry, which could not have struck a similar deal, he said.

New Zealand dairy farmers, buoyant after their best season in decades, would reap the benefits of the deal in their payout.

Dairy farmer leader Charlie Pedersen has also described the Fonterra-Nestle alliance as "more good news for farmers".

Mr Pedersen, chairman of Dairy Farmers New Zealand, said that when farmers voted for Fonterra in June, they did so to give New Zealand the ability to compete with companies such as Nestle, which is the world's biggest dairy foods company, even though dairy products produce only 23 per cent of its profit.



"It's the highest congratulatory signal in the world of dairying - no one would have dreamed of this."

Mr Pedersen said the outcome for farmers would almost certainly be increased payouts, reduced overheads for Fonterra and easier access to markets on both continents.

But the joint venture was not expected to be set up until next year, so there would not be an immediate boost to payouts.

- NZPA