Fonterra seals deal to unlock Americas

By PHILIPPA STEVENSON agriculture editor

Dairy company Fonterra and world food giant Nestle have sealed a deal opening up big opportunities in the $230 billion North and South American dairy market.

The joint venture signed on Monday immediately opens a $300 million, 60,000-tonne market for New Zealand dairy products in Latin America.

But Fonterra chief executive Craig Norgate - in Washington with Prime Minister Helen Clark - said last night that the real benefit would be in its potential for new business in Latin America.

"Both of us see this part of the world as particularly attractive, particularly around chilled and liquid products where we were going to end up competing with each other," he said.

"We move to No. 1 across the [Latin American] region with the creation of this alliance. So it's a good starting point for us. The key thing is we will now be working together in terms of future acquisitions."

New Zealand does not figure in the top 10 companies in the South American chilled and liquid milk market.

Mr Norgate said farmers would not see any impact from the deal in this year's payout but should begin seeing benefits next year.

"For New Zealand farmers to get 50 per cent share of the Nestle brands in this sort of business is simply quite significant."

Nestle is the world's largest food company and the global leader in branded dairy products. Fonterra, the world's largest dairy exporter, would now jump competitors to be Nestle's preferred supplier mainly in Brazil and Mexico.

Some of the prospective 60,000 tonnes of goods attracted tariffs so would not be supplied immediately. But Fonterra was playing for the long term when trade barriers came down, Mr Norgate said.

The 50:50 alliance, signalled last August, will be known as Dairy Partners Americas and do business in North, Central and South America.

It will have around 10,000 staff and turnover in the first year of about $3.2 billion from sales of branded chilled products and liquid milk, milk powders and milk management.

"We'll obviously have more bargaining power with the supermarkets. That's the reason we wanted to be across all the categories through that region," Mr Norgate said.

He and Nestle SA executive vice-president Carlos Represas signed the alliance in Christchurch on Monday.

They intended to focus immediately on the markets of Argentina, Brazil, Paraguay, Uruguay and Venezuela, and finalise joint venture companies in the next three months.

Mr Norgate said regulatory approval in each country had yet to be gained but was likely to be an issue only in Chile, where both countries had significant business.

Fonterra chairman John Roadley said the establishment of Dairy Partners America was a historic day for dairy farmers.

"If, 10 years ago, dairy industry leaders had told us we would have an equal alliance with Nestle providing rights to use its brands throughout the Americas, I doubt many of us would have believed it."