The proposed transaction allocates $3.2 billion of the total sale price directly to farmers as a tax-free payout. For a typical Mid Canterbury farm averaging around 350,000 kilograms of milk solids (kgMS) supplied under a one-to-one share ratio, this translates to an estimated windfall of $700,000. Fonterra Board Member Andy Macfarlane noted the strong support for the deal, emphasizing its significance for regional communities like Ashburton, where the capital is expected to initially reduce farm debt before rapidly stimulating local GDP growth through reinvestment.

This strategic shift reflects a ‘head versus heart’ decision, moving away from beloved, long-standing consumer brands like Mainland to prioritize higher-margin activities. Management argues that securing a 15% return on farmer capital in the specialized ingredients space is a significantly better value proposition than the sub-10% returns typically generated in the consumer business. The remaining $1 billion of the sale proceeds will be retained by Fonterra to reduce its debt, positioning the co-op with a highly conservative and stable financial foundation for future operations.

The sale includes a critical supply agreement where Fonterra will continue to supply milk to Lactalis for a period of six to ten years, depending on the milk type. Crucially, the agreement contains mechanisms to ensure Lactalis remains competitive, as Fonterra can seek other buyers if the French company fails to offer the best price for New Zealand milk. Farmer shareholders are now in the final discussion phase and are scheduled to vote on this transformative sale starting next Tuesday.