Fonterra’s $4.22 billion sale to Lactalis raises long-term concerns, professor says

Last month, Fonterra announced the sale of its consumer businesses, including the brands Mainland and Anchor, to French company Lactalis for $4.22 billion. Photo / RNZ

By RNZ

A leading agriculture professor is warning about potential risks from Fonterra’s billion-dollar sell-off of its consumer brands.

Last month, Fonterra announced the sale of its consumer businesses, including brands Mainland and Anchor, to French company Lactalis for $4.22 billion.

While the sale will see farmers get a cash boost with a tax-free return of $2 per share, academics fear Fonterra is losing its value-add capacity.

Alan Renwick, an agriculture and economics professor at value-adding, said the sale will create problems in the long run.

“They’re getting a very good price [but] we are giving up something for this money, and that is the value-adding part of the business, the consumer side.

“We do need to consider what we’re giving up, these future earnings and value added that those brands, the policy now will be to focus down on their ingredients and food service.

“So, we’re putting our eggs in one basket and moving away from having a more diversified business.”

The sale included a 10-year agreement for Fonterra to sell milk and ingredients to Lactalis.

But Renwick said ingredients were easier to substitute than brands, which left Fonterra exposed.

“When you focus on being an ingredients supplier like they are, I feel it’s much easier to be substituted as an ingredients supplier than if you’re at the consumer end, where you’ve got brand loyalty.

“Really, for many products, the milk that’s going into them, whether it’s chocolate or whether it’s other factors, the consumer’s not going to know whether that was New Zealand milk or not.

“So, I think there can be challenges there.”

- RNZ