By PHILIPPA STEVENSON agricultural editor
Dairy Board plans for a sizeable investment in Brazil's $11 billion dairy market have been set back.
The board said yesterday that a $500 million bid for a controlling stake in Brazil's fifth-largest dairy company, Grupo Vigor, had failed.
"We were unable to reach agreement over the total
amount payable for the company," said David Pilkington, the board's New Zealand Milk managing director.
The board had high hopes for the deal it announced last September. "Brazil is the powerhouse economy of Latin America and this investment represents a major step in extending the board's fast moving consumer goods strategy in Latin America," chief executive Warren Larsen said at the time.
Then board chairman Graham Fraser said Brazil, population 165 million, had a dairy market worth more than $11 billion - the second largest in the Western Hemisphere. The purchase would bring significant benefits to the New Zealand dairy industry, he said.
The board had anticipated due diligence on Vigor, whose annual sales of liquid milk, cheese, culture products and spreads are worth $600 million, would be completed by the end of last year.
Yesterday, board spokesman Neville Martin explained the longer time taken. "That's Brazil. Things are lengthy and complicated."
The failure was a setback but it was not a smart investment if the board paid too much. "It's only a good buy at the right price."
The board, or the proposed Global Dairy Company, would pursue other options in Brazil.
"We need to be on the ground in Latin America. We need to have bricks and mortar investment and some of the key markets there - Brazil is obviously one of them - and we'll be pushing on."
A number of other possibilities were being looked at but had not reached the stage of talks, Mr Martin said.
A key obstacle to the deal was that agreement could not be reached on the value of credit available to Vigor under an incentive scheme operated in the state of Goias for the purpose of attracting manufacturing business.
The board's ingredient business, NZMP, began operation in Brazil five years ago and has annual sales of around $60 million.
