Fonterra revive Australian dairy exit plans

Fonterra chief Rene Dedoncker says any divestment decision “would take at least 12 to 18 months to finalise.” Here’s why.

Rene Dedoncker is the managing director of Fonterra Australia. Photo: Aaron Francis

Fonterra’s Australia-based managing director Rene Dedoncker has moved to assure farmers that the processor would “intend to include all existing milk supply contracts” in place at the time of sale.

Last week, Fonterra’s New Zealand management announced it was exploring options to potentially divest all or some of its global consumer business, including Fonterra’s Australian operations.

Mr Dedoncker said the Australian business was performing well, having recently completed an integration with Fonterra’s brands business in New Zealand, to form Fonterra Oceania.

“It is our belief that the Fonterra Oceania business will strengthen our presence in Australia, New Zealand and across Oceania,” he said.

“At this stage, the Fonterra Co-operative is exploring potential divestment options.

“Any decision would take at least 12 to 18 months to finalise.

Mr Dedoncker said Fonterra in Australia would continue to operate as normal, including working with farmer-suppliers.

“We understand that this is an important time for many Australian farmers as they consider their milk supply options,” he said.

“We would like to assure our farmers that, if a divestment was to go ahead, we intend to include all existing milk supply contracts that are in place at the time of sale.

“These contracts are vital to our business. Any purchaser of the business would then be obligated to comply with the terms of agreements until expiry of the term of the agreement.

“We are committed to keeping our people, farmers and community updated as this process progresses and will share any new information as soon as we can.”

TUESDAY

Dairy leaders say Fonterra’s exit from Australia will likely result in a carve-up of its assets due to competition and foreign investment constraints.

Last week, the Auckland-based dairy giant revived plans to sell off its Australian operations as part of a worldwide restructure.

Fonterra boss Miles Hurrell also surprised the NZ dairy sector by throwing lucrative Kiwi brands such as Anchor milk and Mainland cheese into the sales mix, in the biggest shake-up of the co-operative since its 2001 formation.

Dairy Farmers Victoria president Mark Billing said last week’s announcement provided little clarity with a range of options for Fonterra Australia now on the table.

“Competition is key for farmers and the wider dairy sector. New Australian-based buyers, not just one but probably several, would be the ideal result but there are no guarantees,” he said.

“With the existing processors in the Australian market, for the biggest operators, there are competition hurdles they need to clear in some instances.

“Then there is the potential for foreign operators to get involved and in the very recent past, we’ve seen potential sales blocked by the foreign investment review process.”

Bega secured Lion Dairy and Drinks in 2021 after then treasurer Josh Frydenberg rejected a $600 million proposed acquisition from China Mengniu Dairy over foreign investment concerns.

United Dairyfarmers of Victoria president Bernie Free said any new buyers of Fonterra’s Australian assets should be preferably domestically based and not linked to retail.

“The worst option would be to see Woolworths or Coles taking over plants like Cobden. That’s already occurred with the old Murray Goulburn assets in Sydney and Melbourne sold off by Saputo,” Mr Free said.

“It’s a game of wait-and-see. The hope is that it’s an Australian buyer and you’d say it’ll have to be several buyers purchasing different parts of the business because its such a vast operation.”

The announcement comes as dairy processors including Fonterra warned opening milk prices for the coming season were set to fall compared to the 2023-24 financial year due to slowing consumer demand at home and abroad.

LAST WEEK

Dairy industry leaders have called for clarity over Fonterra’s moves to sell off its Australian operations, following its snap announcement on Thursday.

Both Australian and New Zealand leaders responded with concern to Fonterra’s open-ended sale process, with former NZ prime minister Helen Clark labelling it as “very depressing.”

Market analysts say Fonterra is likely to net at least $NZ2bn for its Australia consumer, food service and ingredients business — with a portfolio of factories including Cobden, Stanhope and Darnum in Victoria.

Australian Dairy Farmers president Ben Bennett said this week’s announcement was badly timed for primary producers with farmgate price deadline only a fortnight away.

He said farmers would prefer to see an Australian buyer but that the sale process was only fresh and much could change in the coming months.

“Maybe this is the dramatic news that gives Australia a wake up call about the state of the dairy industry,” Mr Bennett said.

“There are many issues about the sustainability of farmers, processors and paying a fair price for dairy products at the retail level.

“Of course, farmers would want to see an ethical business, preferably an Australian business, take on (Fonterra’s assets) but it’s early days.

“We need more clarity from Fonterra about what they intend to do next. They can’t leave farmers, workers and the rest of the community hanging.”

Fonterra employs more than 1600 people across Australia and was last year locked in a pay deal dispute with manufacturing workers, which resolved in October 2023.

United Workers Union dairy co-ordinator Neil Smith said: “The potential closure of Fonterra sites across Australia would obviously have a massive impact on workers and communities in our regions.

“At this stage there are a lot of questions yet to be answered, but United Workers Union has confirmed with the company that they will consult with workers and the union in a detailed and meaningful way, including open communications and meetings on site.

“The union will be there every step of the way to support workers and ensure this happens.”

Across the Tasman, former New Zealand prime minister Helen Clark led a chorus of criticism for Fonterra’s moves to sell off popular brands such as Anchor and Mainland.

“Very depressing that Fonterra plans to sell off well-known consumer brands,” Ms Clark wrote on social media.

“If they go into foreign ownership, that has adverse implications for NZ’s balance of payments. Company’s vision seems limited to being an efficient commodity producer.”

THURSDAY

Fonterra is reviving plans to sell off its Australian operations as part of a worldwide restructure announced in Auckland today.

Management has confirmed it has unsolicited offers for the assets now on the market, with its Sri Lanka operations also up for sale.

The major processor has eight manufacturing sites spread across Victoria and Tasmania, several of which were acquired when it took over Bonlac two decades ago.

Fonterra chief executive Miles Hurrell said the co-op could increase its value to farmers as a business-to-business dairy product provider.

“We believe we can grow further value for the co-op by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing ingredients and food service channels,” he said.

Mr Hurrell said Fonterra now believed it was “not the highest-value owner of the consumer and associated businesses in the longer term”.

“A divestment of these assets would help create a simpler, higher performing co-op with our focus on our core ingredients and food service business and doing what we do best,” he said.

The announcement comes as dairy processors including Fonterra warned opening milk prices for the coming season were set to fall compared to the 2023-24 financial year due to slowing consumer demand at home and abroad.

Earlier this week, Fonterra farm source director Matt Watt said many shoppers were cutting back on dairy produce due to cost of living pressures.

“The environment remains challenging with lower cost dairy imports continuing to come into Australia and creating price barriers to export,” he said.

“In recent years we’ve seen a strong commodity market, strong consumer demand and a shortage of milk to meet this demand going into the new season, however for (the new season) we are seeing a weaker commodity market and lower consumer demand due to cost of living pressures.”

New Zealand’s largest dairy player entered the Australian market in 2005 with the purchase of the Nestle factory near Warrnambool in southwest Victoria.

Fonterra sold the Dennington site in 2020 to ProviCo Australia.

The Auckland-based processor then turned its attention to Bonlac, gaining a foothold in Australia’s butter market by acquiring the Western Star brand.

In September 2021, Fonterra announced an “ownership review” of its Australian business, which ended in early 2022 after management failed to find a suitable buyer.