In addition, Fonterra will have $1b to spend over the next three to four years in projects to generate further value through its remaining high-performing Ingredients and Foodservice businesses.
The act of letting Mainland go was simply an honest admission from Fonterra that others, with more capital available for reinvestment, could do better with the asset.
All up, about $7b in assets have been sold since Fonterra started down this track under CEO Miles Hurrell in 2019.
Some assets, such as Chile’s Soprole – bought by the Dairy Board in 1986 and sold in 2023 for $1b – clearly had no meaningful place in the Fonterra portfolio.
In the big picture, there is potential for a slimmed-down Fonterra to recapture the optimism surrounding the co-op when it was formed in a three-way merger between the NZ Dairy Board, NZ Dairy Group and Kiwi Co-operative Dairies in 2001.
Foreign Minister Winston Peters – never one to turn down the opportunity for a headline – described the Mainland deal as “utter madness”.
Clearly, Fonterra’s shareholders – many of them astute business people in their own right – see it differently.
The co-op is their business, and theirs to do with whatever they wish.
The sad part is that there seemingly was not the depth in the Australian and New Zealand capital markets to take up the challenge and launch Mainland as an initial public offer – an option that Fonterra considered up until the last minute.
Since its inception, Fonterra’s performance has been a bit patchy, peppered by some ill-advised investments and some outright bad luck with the false botulism scare and product recall of 2013.
In recent years, the company has gone from strength to strength, reflecting in part the divestment process.
The co-op has come a long way.
The NZX-listed units, which one fund manager once said were “uninvestable”, now trade at about $8.26 – up 168% from two years ago.
The shares – which farmers have to buy in order to supply the co-op with milk – have more than doubled to $5.95 over the same period.
There have been wins and losses along the way.
In both Ingredients and Foodservice, the co-op continues to innovate, led by Fonterra’s Research and Development Centre at Palmerston North.
Robust and well-thought-out capital management is vital for agricultural co-operatives, given the volatile commodities markets they occupy.
If they get it wrong, they don’t remain wholly farmer-owned co-ops for long, taking Westland Milk, Alliance Group, Silver Fern Farms, and Australia’s Murray Goulburn as recent examples.
It’s been a long process getting Fonterra – arguably New Zealand’s most important business – to this point.
In rugby parlance, a leaner, nimbler Fonterra has been passed the ball by its farmers.
Now, it just needs to run with it.
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