Fonterra pulls pin on Russia, dumps St Peterburg’s JV over Ukraine, as Ansell suspends all imports

The world’s biggest dairy exporter has added to the rush of Western businesses to formally withdraw from Russia, while Ansell suspends all imports.

Fonterra has become one of the first Western companies to permanently axe Russia relations over the Ukraine invasion.

Fonterra, the world’s biggest dairy exporter, has become one of the first trans-Tasman companies to permanently sever its Russia operations over Moscow’s invasion of Ukraine.

Meanwhile, rubber gloves and protective clothes maker, Ansell, has suspended all imports into Russia, where it employs 120 people and recently opened a factory.

Fonterra - New Zealand co-operative, which has extensive Australian operations - will close its Moscow office and walk away from its 49 per cent stake in Unifood – a joint venture with St Petersburg-based Foodline, one of Russia’s biggest food distributors.

The decision comes after Fonterra suspended exports to Russia last month after more than 40 years trading with the country. It joins hundreds of businesses including McDonald’s, oil giants and banks have paused or ended Russian operations, despite authorities threatening to seize and nationalise assets of companies who leave.

It marks the end of a stampede of Western businesses, who flocked to Russia as the country lurched from communism to capitalism, with Russian President Vladimir Putin branding the fall of the Soviet Union “the greatest geopolitical tragedy of the 20th century”.

Fonterra chief executive Miles Hurrell said Russia accounted for 1 per cent of the co-operative annual exports, which comprised mainly butter. Mr Hurrell was confident Fonterra could relocate products formerly Russia bound to other markets, and he made the decision to withdraw from the country after speaking with Foodline.

“Our first step following Russia’s invasion of Ukraine was to establish the safety of the team in Russia, and our priority through this process continues to be doing the right thing by our people,” he said.

“Following careful consideration of the impact on our people and our long-term plans for the Russian market, we will now close our office in Moscow, redeploying staff where possible, and withdraw from our joint venture Unifood.”

“Given the current strong demand for New Zealand dairy, we are confident in our ability to reallocate this product to other markets.”

Fonterra began its partnership with Foodline, which was the co-operative’s primary distributor of butter and cheese in Russia, in 2005. Thirteen years later the two companies formed the Unifood joint venture, which involved manufacturing Anchor-branded butter and cheese, using Russian-sourced and imported ingredients, among other products.

While the amount of product Fonterra exports to Russia is small, Moscow has previously heavily influenced global dairy markets, which have filtered down to the price processors pay farmers in Australia and New Zealand for their milk.

In 2014, the Putin regime banned food imports in retaliation against Western countries, which imposed sanctions on Russia’s defence, oil and financial sectors over its support for rebels in eastern Ukraine and annexation of Crimea. The move wiped $200m off the value of Australian agribusinesses.

It also led to banned European dairy products being redirected to China, at a time Beijing was starting wind down dairy inventory, putting pressure on global dairy prices.

“Russia dealt the global dairy sector its first blow in 2014,” Rabobank said in its latest quarterly dairy report.

“After the Russian annexation of the Crimean Peninsula in March 2014, the US, the EU, Australia and other western countries imposed economic sanctions on Russia. Russia retaliated with an embargo on a long list of food products, including fluid milk and dairy products, resulting in an EU market loss for 250,000 metric tons of cheese and 30,000 metric tons of butter. Since then, Russia has supported improvement in domestic milk quality and production growth, with output up more than 15 per cent since 2015.

“Russia’s invasion of Ukraine presents significant upside price risks for energy, fertiliser, and agricultural commodities, which will have a spill-over impact on feed costs, feed availability, and ultimately on dairy commodity prices and farmgate milk prices.”

The volatility may force Fonterra to delay a potential $1.2bn IPO of its Australian business – one of the outcomes of its ownership review, which it has appointed UBS and Jarden as its advisers.

Fonterra Australia managing director René Dedoncker told The Australian last week “we’re deliberately making sure that we take the time to get it right”.

“There’s been a lot of effort that’s gone into it and my primary interest for the last few months has been to make sure I’ve got a healthy business that’s performing and that healthy businesses (is) still attractive to future owners.”

The upshot of Russia’s 2014 food ban was Australian dairy exporters have since developed new markets. Greater China remains the biggest export market, accounting for more than 318,000 tonnes, followed by Singapore (70,100 tonnes) and Japan (69,200 tonnes).

Meanwhile, Ansell listed Russia as having “attractive emerging market exposure with strong growth” in an investor update. Sales across emerging markets surged 20.9 per cent last year to $US157m last year, with Russia recording 3.1 per cent growth.

In the fine print of its emerging markets chart, Ansell said: “In Russia, we have about 120 employees and a small manufacturing facility supplying the domestic market only”.

“We have suspended all imports into Russia as we continue to evaluate the situation”.