Fonterra eyes buyout of Saudi partner

Photo / Sarah Ivey

Fonterra is in talks to buy out its partner in the Saudi Arabian milk and cheese market, Saudi New Zealand Milk Products.

A spokesman for the dairy co-operative confirmed it had a conditional agreement to purchase the other 51 per cent of the business from Sadafco, the Saudi Dairy and Foodstuff Co. "We expect it to settle in early January," the spokesman said. "We just don't want to give any more details about it until then."

Fonterra entered into the joint venture in 1996 and makes processed cheese, feta and sachet and canned milk powder for customers in the Gulf states.

The spokesman would not give any figures on how much Fonterra earns from Saudi Arabia, but its latest annual report shows revenue from Asia, Africa and the Middle East was $1.67 billion in the year to July 2009, up from $1.37 billion in 2008.

Sadafco, Saudi Arabia's third largest food producer by market value, indicated last Sunday that it may sell its holding in the processing venture.

In a statement to the Saudi Arabian Stock Exchange, Sadafco said it had signed a memorandum of understanding with Milk Products Holdings and New Zealand Milk International to consider the plan.

MPH is a subsidiary of NZ Milk International which is owned by Fonterra Brands.

Sadafco, which also makes juices, tomato paste and ketchup, has seen enormous growth in its profits this year. In the three months to March 31, it posted a net profit of three million riyals ($1.12 million) which more than tripled to 13.1 million riyals in the three months to June 30.

Fonterra is New Zealand's largest exporter to the Middle East but its business there has not been without challenges.

In 2006 Fonterra and Sadafco moved to reassure customers that its products were made from New Zealand milk after controversial cartoons published in Danish newspapers saw Saudi shoppers boycott its products. Saudi New Zealand Milk Products has two offices in Saudi Arabia.

- ADDITIONAL REPORTING: AGENCIES