Fonterra dominates our dairy industry, which accounts for  around 3.1% of our entire GDP.

It is owned by approximately 10,000 New Zealand farmers, has 20,000 employees, and dominates whole regions including Northland, Canterbury, Waikato, Taranaki, and increasingly Southland and Otago, and most of the towns within them. Fonterra is the largest single turning mechanism in the hyper-concentrated capitalist machine of New Zealand.

The initial legislation that merged the entities together established a New Zealand dairy cooperative with the scale to compete in the global market.

As of this week, however, it is not only preparing to sell out all its core consumer brands like Anchor and Mainland, it is also preparing to exit out of all its remaining factories outside of New Zealand.

It’s like the standinding joke from the 1980s on how to get a Kiwi to make a medium sized company: give them a big company and stand back.

We do not, for 25 years of state intervention into Fonterra, have a Kerry’s like Ireland, a Danone like Italy, or anything like a Nestle of Switzerland. We have a rapidly shrinking business. It is now going to focus entirely on ingredients straight to food manufacturers.

A decade ago it failed to see the competitive edge of A2 milk and could have bought it out.

In 2005 it was outplayed by San Miguel Ltd for National Foods.

Through the early 2010s it made a series of disastrous foreign investments particularly in China.

In 2019 it sold Tip Top. In 2020 it sold all its Chinese farms. In 2022 it sold its big Chilean business. In 2023 it sold its Brazilian joint venture with Nestle.

With that cash, rather than do something useful with it for the future, it just returned most of it back to shareholders.

This was the scale of the failure described back in 2018:

Fonterra has, from a long-run financial perspective, fallen well short of expectations. The company’s share price is well below where the price should be if Fonterra had delivered the merger benefits that were forecast at the time the company was formed by special legislation. Moreover, the much anticipated “move up the value chain” has not been achieved, with revenue growth falling well short of the targets that were set. It is encouraging that the company has announced an “everything on the table” review and the government is at the same time reviewing the legislation. In our view, a fundamental rethink is required if the company is to add value to its suppliers, its shareholders and the New Zealand economy.’

It has had successes. It has for many years been pushing beyond infant milk preparations –  absolutely boomed during the COVID years through to 2022. Anchor’s Proten+ and Milk&Grain+ are on tens of thousands of shelves across Malaysia, Philippines and Thailand already, and they are the result of Fonterra being our most important iinvestor in Research and Development. But selling off Anchor is like selling off the All Blacks: it’s one of just four things we are actually respected for in the entire world. The other two being scenery and Lord of the Rings.

Yet two years after the previous review the NZ Productivity Commission just put it out there:

As a national champion, Fonterra has fallen well short of expectations. Industry leaders projected that Fonterra’s revenue was to grow at 15% p.a. to $30 billion by 2010 as the company diversified into high-value consumer products. In reality, revenue has grown by less than 2.5% and the company has had to write down millions of dollars from unsuccessful overseas investments.”

With the sale of the branded business there will be far less motivation to invest in R&D, and with that goes for example its Massey R&D plant and much of the Massey University association.

Fonterra is but one example of the drag on our economy and our society that super-concentrated and lazy oligopoly-monopsonies have on us. But it is likely our largest and deepest downward drag.

There is no political will to improve this drag on New Zealand. In the shape of Nicola Willis, Fonterra now has one of its previous senior executives operating as the governments’ Minister of Finance. The Minister of Agriculture Todd McClay continues the fine tradition of enabling MFAT to be a subsidiary of Fonterra. Our Associate Minister of Agriculture Andrew Hoggard was head of the national agricultural peak group Federated Farmers which actively destroyed efforts to regulate water quality produced by dairy farmers.

Whenever it has been asked, the government has changed the laws Fonterra needed changing. When Fonterra needs Kiwirail to invest its way, Kiwirail obliges. Fonterra have successfully resisted every single attempt to regulate the environmental standards for suppliers, and instead invent their own.  Not only do ordinary New Zealanders have no power over Fonterra, Fonterra have actively used their power over our state.

As a national champion, Fonterra has fallen well short of expectations. Industry leaders projected that Fonterra’s revenue was to grow at 15% p.a. to $30 billion by 2010 as the company diversified into high-value consumer products. In reality, revenue has grown by less than 2.5% p.a. and the company has had to write down millions of dollars from unsuccessful overseas investments.

It’s now scrapped its 2030 profit targets. We don’t know their intended future financial or investment direction.

Following its colossal scandals and investment mistakes since inception, it righted itself with a new management team and was recognised for that by gaining a Most Improved Performance award by Deloittes in 2022. But anything can look profitable when you’re just selling assets off year after year, as Fonterra continues to do.

Now, there is no talk of Fonterra’s global ambition. There is not a hint left of how Fonterra will open up for New Zealand a new era of anything. There is no admission of the codependent relationship New Zealand has with just one business.

Like an oil major such as BP or CALTEX, Fonterra through Dairy NZ has successfully lobbied to ensure that they never have national regulations that motivate common national scrutiny of its environmental damage that would in turn push Fonterra to be more than a damaging milk extractor.

To see how that looks for motivating investors: Kiwisaver funds have made 42% returns by investing in Nestle over the last five years, against a loss of 55% in the Fonterra Shareholders Fund.

It simply shouldn’t be that way.

Some may well argue that businesses should just stand or fall. The problem with that for New Zealand is that our economy particularly our export economy is now so concentrated that Fonterra if there were any business with the definition is Too Big To Fail. It’s wayyy bigger than the National Bank or the BNZ in its negative impact if it fell or declined fast.

Chief Executive Hurrell simply concluded:

We intend to provide a further update on our revised long-term strategy in due course. This will include further detail on our plans to grow the long-term value of Fonterra and the measures through which we will track our progress.”

So we may or may not get some sense of all this in future.

Fonterra dominates much of our export economy and hence the fate of its terms of trade. It is by a long way our largest business, dominates many of our regions, and is our largest direct and indirect employer. It has consistently destroyed wealth. It has now made its single largest strategic move, but the CEO won’t say how this will achieve greater value focus, nor whether it will make money, nor provide any measures about whether this colossal selldown was good or bad.

Is Fonterra going to continue to drag New Zealand down?

You can now read the most important #news on #eDairyNews #Whatsapp channels!!!

🇺🇸 eDairy News INGLÊS: https://whatsapp.com/channel/0029VaKsjzGDTkJyIN6hcP1K