An industry veteran makes a strong case for the proposed Fonterra-Lactalis deal, citing years of financial losses.
A recent commentary argues that Fonterra’s dairy farmer shareholders should wholeheartedly support the cooperative’s proposed sale of its consumer-facing ingredients business to Lactalis. The author, a long-time observer of the New Zealand dairy industry, asserts that farmers should sell raw milk and its components rather than attempt to compete in the complex and costly consumer goods market. This perspective suggests that Fonterra’s future lies in its core strength as a business-to-business (B2B) supplier.
The article frames this strategic shift in the context of global dairy economics. While New Zealand produces a relatively small volume of milk annually—21.4 million tonnes compared to the 186 million tonnes of India or the 167 million tonnes of the European Union—it is a disproportionately large player in world dairy trade, contributing almost a third of all global dairy exports. The author believes the cooperative should focus on this strength and leave direct-to-consumer competition to companies with larger domestic markets.
A key part of the argument is built on Fonterra’s history of failed international ventures. The author references costly mistakes, including a joint venture in China with Beingmate that wasted $756 million, a $1 billion investment in Chinese dairy farms that largely achieved nothing, and a stake in a Lithuanian dairy processor. These past failures, the article suggests, underscore the wisdom of the new leadership’s decision to simplify and de-risk the cooperative.
The financial data presented in the article makes a compelling case for the sale. The food business that Fonterra intends to keep delivered a 19.6% return on investment (ROI) last year. In contrast, the ingredients business being sold to Lactalis had an ROI of just under 7%. The author points out that this significant performance gap indicates that the most profitable path for the cooperative is to focus on its B2B operations rather than consumer-facing brands.
Ultimately, the author’s viewpoint is that the proposed $4.22 billion sale to Lactalis will provide a huge boost to both the country and to Fonterra’s dairy farmer shareholders. The article concludes by arguing that the deal will create a “simpler, higher performing cooperative,” and that based on the evidence, farmers “would be nuts not to” support the sale.
Source: The Post, “Farmers would ‘be nuts not to’ support Fonterra-Lactalis deal”
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