Peter McClure explains why running global FMCG dairy from NZ proved impossible after 20 years building brands.
Peter McClure, former managing director of Fonterra Brands for nearly two decades, has publicly endorsed the cooperative’s decision to sell its consumer brands business to Lactalis despite personal attachment to brands his team built. McClure acknowledges the harsh realities of competing against entrenched global FMCG giants including Nestlé, Danone, and Lactalis from Auckland using New Zealand milk, noting that these multinational corporations already dominate targeted categories across potentially attractive markets. His insider perspective provides crucial validation for a transaction that has generated significant debate among Fonterra stakeholders and New Zealand’s agricultural community.
The fundamental challenge facing Fonterra’s consumer brands business stems from New Zealand’s highly seasonal milk production curve that concentrates output during September-December peak months, creating operational mismatches with FMCG requirements for flat year-round supply. While commodity businesses can manage massive sudden milk influxes efficiently, FMCG operations face significant costs managing seasonal volatility that critically damage bottom-line competitiveness in global markets. McClure emphasizes that dairy processing involves delicate raw milk requiring expensive time-sensitive handling from cow to consumer, with hundreds of products featuring different shelf lives requiring refrigerated storage across the FMCG range.
Capital requirements for sustaining full dairy product ranges with diverse processing needs prove prohibitive given New Zealand’s small domestic population that nonetheless demands product variety, making it difficult to deliver returns on capital commensurate with investment risks. Export complexity multiplies challenges through short shelf-life requirements for cultured products, UHT liquids, flavored milks, and drinking yogurts where unbroken cool chains from farm gate to Asian consumers prove essential. Additional barriers include country-specific packaging requirements, market access constraints, shipping costs, and relentless shelf-life pressures that elevate operational complexity exponentially compared to domestic distribution.
Maintaining FMCG market relevance demands substantial resources for product differentiation against competitors including private label brands, requiring regular new product launches and upgrades that often necessitate processing or packaging equipment upgrades. Without significant scale, this capital burden becomes unsustainable, while alternative strategies like building in-market plants face prohibitive construction costs, difficult milk supply procurement, and persistent skilled labor shortages. McClure notes that focusing on longer shelf-life products like cheese, UHT items, and infant formula still presents issues better addressed through Fonterra’s foodservice and ingredients channels with reduced risk exposure.
McClure concludes that Fonterra’s strategic pivot toward core competencies—supplying large customers with ingredients and foodservice products—will simplify operations while enabling full focus on value extraction from businesses where the cooperative maintains genuine competitive advantages. The assessment acknowledges that New Zealand’s geographic isolation at “the bottom of the world” created inherently unrealistic expectations for competing globally in fast-moving consumer goods dairy categories against established multinational corporations with superior scale, market presence, and operational flexibility that small-country cooperatives cannot match regardless of brand equity or product quality.
Source: Farmers Weekly – Selling off Fonterra’s brands the right call
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