Fonterra ends supply deal with Lu Xianfeng’s Tasmanian dairy operation

A supply deal between Fonterra and a controversial Chinese-owned dairy has ended. See what it means for the industry.

One of Australia’s largest dairy enterprises has been dropped by Fonterra, following years of controversy surrounding the Tasmanian operation.

Fonterra management confirmed the supply agreement with Van Dairy Limited (VDL) farms in Tasmania wrapped up at the start of February.

Van Dairy has an estimated 7000 cattle as part of its Woolnorth operations, located 30 kilometres west of Smithton in northwest Tasmania.

But the operation is not as large as it once was.

In June 2021, Melbourne investment company Prime Value purchased 11 of the 25 dairy farms from Van Dairy an estimated $62 million, leaving 14 remaining.

Fonterra farm source director Matt Watt said the end of the Van Dairy link would not impact operations at its Wynyard and Spreyton factories.

“Following several years of collecting milk from Van Dairy Limited farms in Tasmania, we have ceased our supply agreement with VDL and Mr Lu Xianfeng,” he said.

“While we do not discuss the details of our confidential commercial arrangements, we can disclose that we made this decision based on a number of commercial factors we have been unable to resolve.

“We stopped collecting milk from all VDL farms on 1 February 2024, after providing VDL with several months’ notice to mitigate the impact on their business and support them in determining their next steps.”

A rotary platform at Van Dairy Limited (VDL), pictured at Woolnorth back in 2011.

Mr Watt said the milk volumes supplied by VDL “had declined significantly in recent years.” “Our Farm Source team have been working with other farms to secure alternative milk supply,” he said.

“We remain committed to our farmers, communities and people in Tasmania and our operations at Wynyard and Spreyton will continue, with no intent to reduce production.”

In 2016, the Foreign Investment Review Board approved the application of Chinese-owned Moon Lake Investments to buy the Van Diemen’s Land Company. Moon Lake Investments subsequently changed its name to Van Dairy Limited.

Van Dairy has been the subject of considerable debate in the Tasmanian parliament with state Greens leader Cassy O’Connor critical of government oversight of the farm.