Fonterra are eyeing an exit from Australia. So what does the latest move from the New Zealand-based processor mean for farmers?
Australia’s competition watchdog needs to closely scrutinise Fonterra’s exit from Australia, farm lobby leaders say, with moves towards a potential sale.
Hours prior to the Easter long weekend, Auckland management confirmed the appointment of new leaders to handle the divestment of Fonterra Oceania and Sri Lanka.
In a market statement, it said it had reached a stage “where some potential purchasers may pre-emptively apply for regulatory approvals,” before any deal was made.
Market analysts say Fonterra is likely to net at least $NZ2bn ($A1.9b) for its Australia consumer, food service and ingredients business – with a portfolio of eight manufacturing sites spread across Victoria and Tasmania,
United Dairyfarmers of Victoria president Bernie Free said the competition watchdog needed to apply greater scrutiny to divestment of Fonterra’s Australian assets than it had in prior milk manufacturing decisions.
“Competition between processors is critical for the future of farming. There are opportunities for Fonterra exiting Australia, but there are also a lot of concerns over whether it consolidates dairy manufacturing further,” Mr Free said.
“When you have a big operator like Fonterra taken out of the picture, and possibly absorbed by another big player, that’s really concerning for the farm gate.
“You only have to look at the current competitiveness at the farm gate to know that we already have a problem, so this has the potential to exacerbate it.”
Along with factories including Cobden, Stanhope and Darnum in Victoria, the sale is set to include popular supermarket shelf brands such as Western Star and Perfect Italiano.
Fonterra’s Australian brands also produce Bega-branded block cheese, which was the result of a complex legal arrangement dating back prior to Fonterra’s 2005 acquisition of Bonlac.
Dairy Farmers Victoria president Mark Billing said it was essential the Western Star brand, with its historic links to Cobden and its Western District branding, remained in Australian hands.
“Western Star has built up a lot of consumer goodwill over the generations, it even says proudly made in Victoria’s Western District on the packaging,” he said.
“So keeping Australian-made dairy channelled into Western Star and Perfect Italiano cheese varieties is important under any Fonterra sale of Australian brands, which is what they’ve flagged. Those brands build up consumer trust over the years – so people may assume when they go to the supermarket that they’re supporting Australian farmers by buying Australian butter or cheese, even when that brand has been sold on and no longer contains 100 per cent Australian ingredients. That’s a big concern.”
Fonterra factory at Stanhope. Picture: Zoe Phillips
In last week’s announcement, Fonterra management said it was “undertaking a dual-track process” by pursuing both a trade sale and initial public offering as potential divestment options.
Former Commonwealth Bank non-executive director Anne Templeman-Jones was announced by Fonterra as chair-elect of the audit and risk committee for the Mainland Group Board as part of the divestment process.
Fonterra chairman Peter McBride said Ms Templeman-Jones had extensive corporate experience that would hold her in good stead for the new role.
“Anne’s career spans the banking and financial services, consumer goods and energy sectors,” he said.
As part of last week’s exchange announcement, Fonterra advised that it was “now at the stage where some potential purchasers may pre-emptively seek regulatory approvals, which is a standard step ahead of any deal being agreed.”
Fonterra’s Australian headquarters was contacted by The Weekly Times for comment.
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