Agribusiness Report: Building on a household name

Fonterra is making good use of JV projects in Latin America, says Alex Turnbull.

Fonterra is looking to build its presence in Latin America. Brierley Penn talks to managing director Alex Turnbull.

Fonterra is looking to leverage off key brands in the Latin American market to build their regional presence, and move further up the value chain into less commodity-based goods.

Of their seven strategic platforms, Fonterra is focusing on the potential in Latin America to grow and leverage their brands in everyday nutrition, and to exploit their foodservice potential.

The region offers significant potential to the company, particularly in the development of "everyday nutrition" products, branded consumer dairy, which can generate significantly higher returns than the core ingredients business.

"Obviously ingredients are critical, it's still half of our global EBIT on average, but we need to turn the wheel and drive our brands in consumer business where we get much better returns," says Alex Turnbull, Managing Director Latin America at Fonterra.

"For us, everyday nutrition in Latin America is represented by Soprole, which is the absolute number one market leader in terms of volume and value in everyday dairy categories in Chile. We want to drive that Soprole model right through Latin America."

Brand power is crucial in a market characterised by very strong regional brands. Soprole is Fonterra's oldest offshore investment, and a household name in Chile.

Brazil also offers significant potential for Fonterra, with the company's joint venture with Nestle giving brand power in a highly populated market. Nestle is rated as the second most recognised brand in Brazil, and Fonterra's 51 per cent stake in the joint venture will allow the company to use technology and protein innovations to move up the value chain.

Turnbull is confident the recent overhaul of the joint venture will allow both companies to move further up the value chain, and achieve their aligned strategic goals.

"Brazil's going to need a bit of a reset in terms of getting more foreign investment after the World Cup and Olympics are over," he says.

"But there's still an enormous middle class population, and dairy consumption rates are still well below World Health goals and Brazilian government goals.

"We've already got a consumer group with a huge penchant for milk and dairy, so it's basically all about us leveraging some of our successes in other markets, particularly Chile, understanding what the key trends are in Brazil, and leveraging that joint venture through the Nestle brand to bring those to market."

The Fifa World Cup in Brazil is one example of where the Nestle brand has been able to add value to Fonterra, with Nestle one of the key food sponsors of the event. "Our brands in Brazil are all Nestle, so everything they do from a Nestle corporate perspective obviously rolls straight into the brands we use in DPA.

"That's the power of leveraging two parents with their own relative skills and capabilities."

As Fonterra further refines its strategy in Latin America, the company has bought back its Venezuelan business, and divested in Ecuador.

Turnbull says Venezuela is currently a challenging market, but their strong legacy strength in the country, and continuing role as a larger supplier of basic solids to the Venezuelan industry will position Fonterra well to exploit everyday nutrition opportunities when the market rights itself.

"My number one priority now is stability," Turnbull says.

"Making sure the integration works in the next 90 days, and then we can start to roll out our key global marketing platforms, which we are going to run across the regions to leverage the success we have had in other markets."

The Latin American business offers incredible opportunity, with combined GDP of $6 trillion, and population of 450 million.

Turnbull is confident of Fonterra's long-term prospects, building on a 45-year platform of involvement in the region.

"We're talking about a business now, that when you add it all up on a consolidated basis is already close to NZ$3 billion, so it's about focus in key emerging market regions."

Involvement in a range of export regions can assist Fonterra, as the company can draw on international resources to promote its global brand. "The great thing is that the underlying innovation platform and the brand propositions are extremely similar, which is where we get to leverage." With a global R&D budget of just $100 million, for instance, Turnbull considers this leveraging of both brand and innovation to be crucial to Fonterra's success in a range of emerging markets.