Former Reserve Bank Governor Alan Bollard argues the sale of the co-op’s consumer brands to Lactalis is an admission of failure that risks reducing NZ’s GDP and hands value-add control to a French giant.
The recent $4.2 billion sale of Fonterra’s consumer operations to Lactalis, overwhelmingly approved by shareholders, has received insufficient policy scrutiny, according to former Reserve Bank Governor Alan Bollard. He concurs with Foreign Minister Winston Peters’ questioning of the deal, arguing that the transaction is enormous but lacks discussion on its benefit to the country, as the economic interests of dairy farmers and the nation are not the same. The sale results in a reported $3.2 billion tax-free payout to farmers, a short-term financial boost that obscures the long-term impact of losing national control over value-added production.
The sale is highlighted as an “admission of failure” on Fonterra’s long-standing promise to deliver added value to New Zealand’s dairy production. Since the massive 2001 merger—which combined New Zealand Dairy Group, Kiwi Co-operative, and the New Zealand Dairy Board—the co-op consistently failed to move beyond exporting basic commodities like milk powder, butter, and block cheese. The Lactalis deal means Fonterra will step back from its consumer products entirely, causing its value-added output to drop even further. This situation is ironic given that New Zealand once pioneered advanced dairy products, such as infant formula via the historical Glaxo company.
Bollard warns that ceding control over product and market development and related factories in Australasia to a huge French company like Lactalis means New Zealand will have much less industry control in the future, raising the risk of processing moving offshore. This loss of value-add control is expected to reduce New Zealand’s gross national product (GNP), which measures production by New Zealanders. The critique suggests that the co-operative structure itself had limitations, making it difficult to raise sufficient capital while fostering a short-term focus among farmers solely on each season’s payout.
The author argues that the financial benefit to farmers comes at the cost of national assets. While the $3.2 billion payout is framed as a boost to the rural economy, the media fails to recognize that it represents a huge drop in rural assets. Furthermore, if farmers spend the windfall on imported goods like new cars or cruises, it will result in a further worsening of the country’s trade balance. This expenditure would effectively transfer New Zealand’s hard-earned capital overseas, compounding the negative national economic impact of the sale.
Finally, the article raises a critical issue of implicit state subsidy for the dairy sector. The author contends that the huge emissions generated by the dairy industry are not fully paid for by farmers, which constitutes a large implicit subsidy from the country to the sector. This, combined with the lost control over added-value production and the risk to GNP, reinforces the central thesis: the decision benefits Fonterra’s farmer-owners but is detrimental to the broader economic and strategic interests of New Zealand.
Source: Read the full opinion piece on the national economic impact of the Fonterra sale at BusinessDesk.
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