Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
Last month the co-op signed a sale agreement with Parmalat Australia; regulatory approvals are expected by June this year.
The sale of the Australian yoghurt and dairy desserts business, which includes manufacturing sites at Tamar Valley and Echuca, and the Australian yoghurt and dairy dessert brands, is part of a plan to return Fonterra's Australian business to strong and sustainable profitability, it says.
In its 2015 annual report Fonterra said that lower returns from Australian dairy desserts and yoghurt units had affected volume growth in its consumer and food service business.
However, Tamar Valley yoghurt sales were up 62% last year. Fonterra bought Tasmania-based Tamar Valley in November 2013.
Fonterra managing director Oceania Judith Swales says the co-op is committed to the Australian dairy industry and its retail business, and the sale is intended to lock in its competitive position in the Australian consumer market.
"We will continue investing in programs and innovation that support our market-leading brands in key retail categories, including Western Star butter and Perfect Italiano, Mainland and Bega cheeses, Anchor cream and fresh milk.
"Divesting the yoghurt and dairy desserts business will allow us to focus on what we do best, so we can continue [paying] a competitive milk price to our suppliers, benefits to our customers, innovative dairy foods to our consumers and improved returns to our farmer shareholders and unit holders," says Swales.
All Fonterra's Echuca and Tamar Valley employees in the yoghurt and dairy dessert business have received offers of employment from Parmalat.
Fonterra recently announced other major changes to turn around its ailing Australian business.
It is spending A$120 million to rebuild its factory in Stanhope, northern Victoria, as a primary cheese making plant with 50% extra capacity. The co-op sold 9% of its holding in Bega Cheese and will spend the cash on the Stanhope cheese plant.
It also announced plans with Bellamy's Australia Ltd and China's Beingmate Baby and Child Food Company Ltd that offer growth prospects in nutritional volume from Fonterra Australia.
A multi-million dollar beverages plant was commissioned at its Cobden facility in western Victoria to service a 10 year partnership with Woolworths and its largest global brand, Anchor, was launched in Australia.
Chief executive Theo Spierings says these changes result from a plan to get better retruns from the Australian business.
"We are focusing on areas where we can win in a highly competitive market, and that means optimising our product mix and streamlining operations to match, and investing in higher value-add products that will deliver the best returns for our farmer shareholders and unit holders.
"Australia is our largest milk pool outside New Zealand, and is an integral part of our multi-hub strategy. Our Australian operations have particular ingredient strengths in cheese, whey and nutritionals, complemented by our strong consumer and foodservice businesses. As a key part of our multi-hub strategy, we are matching these strengths with the opportunities across our 100 markets," says Spierings.
