Analyst rips New Zealand’s dairy giant for selling off its consumer business, warning of lost domestic jobs and strategic vulnerability.
The decision by the New Zealand dairy cooperative Fonterra to sell its “consumer products” operations—known as the Mainland Group—to the French global giant Lactalis has sparked strong opposition from public opinion and analysts like Geoff Fischer. While political leaders maintain that the decision is the shareholders’ right, the critique asserts that every New Zealander is a key stakeholder in the dairy industry, which generates a massive share of the national income, employment, and tax revenue. Since Fonterra is a monopoly created by an act of Parliament, the author contends that any long-term reduction in national income resulting from this sale will be borne by the populace as a whole.
A major concern centers on the lack of transparency from Fonterra and the fate of its New Zealand manufacturing base. The sale encompasses brands like Anchor, Mainland, and Kapiti, along with 16 to 18 commercial sites globally, including three crucial production sites in New Zealand. The fear is compounded by the revelation that Lactalis plans to integrate 4,300 employees into “Lactalis Australia workforce,” suggesting that New Zealand’s factories could become mere branches run by Australian management, with jobs potentially shifting across the Tasman Sea. Lactalis is “almost certainly not” legally obliged to maintain production in New Zealand, making the economic viability of the local sites precarious.
The principal rationale offered for the divestment—that the Mainland Group yielded a lower rate of return on capital compared to the milk powder business—is categorized as the “first folly” of Fonterra. The author argues that exclusively pursuing the highest rate of profit inevitably leads to a dangerous narrowing of the product range, citing a parallel trend in the New Zealand forest industry that saw a destructive shift to single, low-quality commodity exports. This myopic focus risks dismantling the strategic diversity that a robust dairy business requires.
Furthermore, the integrity of the buyer, Lactalis, is heavily scrutinized. The company’s history includes a 2023 factory closure in Italy, a A$950,000 fine in Australia for breaching the Dairy Code of Conduct, a €11.69 million cartel fine in Spain, and ongoing suspicion of aggravated tax fraud in France. Regarding the supply chain, Fonterra has committed to supplying Lactalis with 350 million liters of raw milk annually for a minimum of ten years (representing 7% of Fonterra’s production). However, this long-term agreement offers no guarantee that Lactalis will process the milk into value-added consumer products in New Zealand, as they could simply convert it to powder elsewhere.
The remaining criticisms are categorized as the second, third, and fourth follies. The sale abandons the security and intelligence advantages of a vertically integrated business, potentially leaving Fonterra’s farmers at the mercy of a monopsonist processor. This shortsightedness culminates in the third folly: a high risk that Lactalis will only use Fonterra to “top up supply” after the contract expires, rendering the cooperative highly vulnerable to volatile market swings. Lastly, the fourth folly is the failure to recognize the indirect benefits of domestic processing—the local jobs, tax revenue, and community support—all of which are now at severe risk of closure within a decade.
Source: Get the full commentary on this controversial decision from The Daily Blog.
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