Fonterra cuts funding to biotechnology arm

By SIMON COLLINS, science reporter

Fonterra has cut funding to biotechnology subsidiary ViaLactia by 40 per cent to concentrate on research that has a direct return to the dairy co-operative and its farmer shareholders.

Five scientists and two administrators were told on Friday that their jobs have been axed, and the company is still evaluating whether more need to go.

But ViaLactia chief executive Dr Colin South said yesterday that the impact in New Zealand would be softened by the fact that the company contracted half its research to 23 organisations in 11 countries, including India, the United States, Russia and Australia.

New Zealand contractors include AgResearch, HortResearch, Crop & Food Research, Auckland and Lincoln Universities and, through the BoviQuest joint venture, the Livestock Improvement Corporation. But South does not expect any of them to have to lay off staff.

He declined to put a dollar figure on the funding cut.

The company employs 40 people, including perhaps 30 scientists at an average cost of about $250,000 a head, or $7.5 million all up, for salaries, equipment and other research expenses.

Given that half the research was contracted out, the company appears to have been spending only about $15 million to $20 million a year - already much less than the $30 million a year implied by the initial budget earmarked by the Dairy Board in 1999 of $150 million over the five years from 1999 to this year.

A 40 per cent cut of about $6 million a year appears to mean trimming ViaLactia's budget to $10 million annually.

In effect, the cut is delayed fallout from the merger of the Dairy Board and the two main dairy processing companies to form Fonterra in 2001.

"Industry-good" research benefiting all dairy farmers, including non-Fonterra suppliers, was split off into a new levy-funded entity called Dairy Insight, but ViaLactia stayed under the commercial Fonterra co-operative.

"This was a company that was built on a number of industry-good programmes which Fonterra would not have initiated on their own," South said.

"As a commercial entity, Fonterra is looking to provide funding to ventures and areas that can provide at least a return on investment under reasonable commercial terms."

The main casualty, accounting for all five science jobs axed, is ryegrass genetics research that will benefit all pastoral farmers, not just Fonterra shareholders.

South said research on clover would continue because it was funded jointly by all pastoral sectors through the Pastoral Genomics consortium, which includes Meat NZ, AgResearch and DeerResearch as well as ViaLactia.

Research on the genetics of cows would also continue through BoviQuest.

He said the ryegrass work could be picked up by Dairy Insight, but ViaLactia was keeping "six or seven" scientists in its ryegrass programme in the hope of finding external funding.

ViaLactia

Wholly owned subsidiary of Fonterra.

Established in July 1999.

Aims to identify and commercialise methods of selection and genes important to the dairy industry.

Also works with other biotechnology organisations, including the Livestock Improvement Corp and AgResearch.

A 40 per cent budget cut will put ViaLactia's funding at an estimated $10 million a year.