Fonterra unveils divestment plan
Fonterra is exploring full or partial divestment options for its global Consumer business, as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka.
Four processors - Miraka, Open Country Dairy, Synlait Milk, and Westland Milk Products – claim the Government “is serving the commercial priorities of Fonterra without properly balancing that with the commercial priorities of other dairy processors”.
The comment was made in their joint submission to the primary production select committee this week on proposed amendments to the Dairy Industry Restructuring Act (DIRA) to accommodate changes to Fonterra’s capital structure.
The Government hopes to approve the changes.
But the four milk processors say the Government is less concerned with managing risks arising from Fonterra’s dominance.
“Rather than remaining neutral, the Government again is actively supporting Fonterra in a manner that strengthens Fonterra’s position in the raw milk market.
“In the original DIRA, the main provisions supporting contestability in the raw milk market were the requirements assuring the open entry and open exit of farmer members of Fonterra.
“These were intended to prevent Fonterra using its dominant market power to create barriers to competitors accessing a supply of milk.
“The last time Parliament amended the DIRA in 2020, it repealed the open entry provisions and Fonterra is no longer required to accept all milk offered to it.
“The DIRA was thus amended with the effect of ‘encouraging loyalty to Fonterra’, over and above the anti-competitive impacts the DIRA was supposed to guard against.”
They note that at the time of those Government decisions, Fonterra market share was around 80%.
Fonterra’s market share has not materially changed since then, they point out.
“Nevertheless, having repealed the open entry provisions in the penultimate DIRA amendment, the government is again amending the DIRA to facilitate the Fonterra capital restructure.
“The restructure significantly undermines the remaining open exit provisions of the DIRA.
“This is because members can no longer recover their full investment in Fonterra when they exit.
“This undermining of the open exit provisions further strengthens Fonterra’s already dominant position in the raw milk market.”
Miraka is majority-owned by Maori, Open Country is fully owned by Talley’s, Synlait is a listed company with 39% shares owned by Bright Dairy of China and Westland Milk is wholly owned by Chinese dairy giant Yili.
