The original intent behind creating a mega-cooperative like Fonterra was to establish an undisputed international champion, leveraging scale to compete effectively further down the value chain against global giants like Nestlé and Danone. However, Barber posits that Fonterra’s recent pivotal decision to divest its consumer brand business and focus primarily on ingredients and foodservice products is essentially an admission that this founding ambition failed. The sale, which notably includes a deal with French dairy company Lactalis, will see Fonterra receive $4.2 billion and a long-term supply agreement.

A critical point of discussion arising from the sale is the future of the iconic Mainland and Anchor brands. Barber suggests that Lactalis, having invested heavily in the acquisition, will not necessarily share Fonterra’s historic commitment to these brands unless they consistently perform to profitability expectations. This maneuver is widely anticipated to see Lactalis pursue better returns on capital than Fonterra traditionally realized from its consumer division, a shift that could potentially result in higher consumer prices for milk and butter, depending on the new owner’s efficiency and profit targets.

Barber raises the crucial question of whether the Dairy Industry Restructuring Act remains fit for purpose nearly 25 years after its introduction. While DIRA aimed to foster competition, the sector’s current state features a dominant player alongside resilient specialized competitors. Tatua, for example, continues to thrive by focusing on high-value niche products, consistently delivering a top-tier payout to its limited shareholder base. Open Country Dairy (OCD), the “strong follower,” is also concentrating on efficiency to become a low-cost processor of high-value ingredients.