Fonterra awaits decision on Iraqi contracts

New Zealand dairy giant Fonterra is wondering whether the United States will allow the company to continue doing business in Iraq, just days before the United Nations oil for food programme is due to end.

Fonterra, the sixth largest dairy company in the world by turnover, and first in export trade, has supplied Iraq with whole milk powder through the UN programme since 1998.

But with humanitarian food supplies moving to US control this month, the company's contracts - worth up to US$50 million ($80 million) a year - are up for renegotiation.

Fonterra's director of government and trade policy, Philip Turner, is confident trade will continue with the country, despite the worsening security situation that threatens to delay the November 21 deadline for transferring contracts agreed under the oil for food programme to coalition control.

"As long-term suppliers of the Iraqi market, we are very keen to keep it going," Turner said.

New Zealand opposition parties have voiced concerns that the Government's criticism of the invasion of Iraq had created a frosty relationship with the US and jeopardised local companies' trade prospects.

But the Arab television news channel Al-Jazeera said Fonterra had had assurances this would not affect its contracts' chances of renewal.

Having attended the Madrid conference on the reconstruction of Iraq last month, Turner said the interim Iraqi Trade Minister, Iyad Allawi, assured him the matter was purely financial and logistical, not political.

"There is no evidence that the importation of dairy product is being dealt with in any other way than a straightforward commercial manner," Turner said.

He said Allawi - whose ministry is responsible for food imports - also acknowledged New Zealand's role as a traditionally important dairy supplier to Iraq.

Although Iraq accounts for only a small proportion of the company's $8.14 billion annual turnover, Fonterra has long considered Iraq an important market, particularly for whole milk powder.

Under the UN oil for food programme, it has supplied between 50,000 and 60,000 tonnes of whole milk powder a year - about 10 per cent of the company's overall trade in that product.

"Under a new regime there is huge potential to diversify back to other products; the Iraqi people will get the opportunity to have butter and cheese again," Turner said.

The oil for food programme is in the final stages of prioritising the contracts agreed by the former Iraqi Government with inputs from UN agencies and the Coalition Provisional Authority.

"Once the programme transfers to the CPA on November 21, the CPA will prioritise any remaining un-prioritised contracts and will also have full authority to renegotiate or cancel existing contracts as they come up for renewal," said Nichole Roberton of the New Zealand Permanent Mission to the UN.

Turner said a suggestion that dairy companies from Australia - which joined the US in the invasion of Iraq - might replace Fonterra's contracts was negligible.

- NZPA

Herald Feature: Iraq