FONTERRA’S announcement of what it has termed “a step-change in strategic direction’, whereby it will consider selling its assets in Australia. Including factories at Cobden, Stanhope and Darnum in Victoria, could not have come at a worse time.
With suppliers considering whether or not to change their factory allegiances ahead of the annual farmgate price deadline just a fortnight away.
Here’s what Fonterra had to say last week:
Fonterra Co-operative Group Ltd has today, May 16, announced a step-change in its strategic direction, as it commits to deepening its position as a world-leading provider of high-value, innovative dairy ingredients.
As part of this, the Co-op has announced it is exploring full or partial divestment options for some or all of its global Consumer business, as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka. Chairman Peter McBride says this is a significant move for the Co-op which will set it up to grow long-term value for farmer shareholders and unit holders.
“We have conducted a strategic review which has reinforced the role of our core business. This is working alongside farmers to collect a sustainable supply of milk and efficiently manufacture products valued by customers, to deliver strong returns to farmer shareholders and unit holders,” says Mr McBride.
CEO Miles Hurrell says the review has also given the Co-op confidence in the role it plays in the dairy nutrition value chain, with one of its greatest strengths being the production of world-class, innovative ingredients for customers to take to consumers.
“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 Foodservice channels.
“This will be enabled by strong relationships with farmers, a flexible manufacturing and supply chain footprint, deeper partnerships with strategic ingredients customers, further investment in our Foodservice channel, continued delivery on our sustainability commitments and investment in innovation.
“In this context, we are exploring divestment options for our global Consumer business as well as our integrated businesses Fonterra Oceania and Fonterra Sri Lanka,” says Mr Hurrell.
Fonterra’s Consumer and associated businesses Fonterra’s global Consumer business has grown over the years since Fonterra was formed and is performing well. It includes a portfolio of market leading brands such as Anchor, Mainland, K?piti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano and others.
Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia. It comprises Consumer, Foodservice and Ingredients businesses.
“We expect a divestment process to take at least 12 to 18 months. If we were to proceed with a divestment of this size we would seek shareholder support,” says Mr Hurrell.
Speaking to the Weekly Times, Australian Dairy Farmers president Ben Bennett said suppliers would 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.”
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.”