Fonterra is New Zealand's biggest business and the world's sixth largest dairy company by revenue. Photo / Michael Craig
Fonterra is New Zealand's biggest business and the world's sixth largest dairy company by revenue. Photo / Michael Craig
Fonterra’s farmer-owners are “hungry” for information on the dairy heavyweight’s plan for its global consumer businesses, how the billions of dollars from any sales would be used and what their co-operative will look like after.
Farmer watchdog council chairman John Stevenson said while Fonterra had not led farmers to expectany information before now from a sale assessment of the $3.3 billion revenue consumer product businesses, they are “really hungry for more information” and detail so far is “not significant”.
New Zealand’s biggest business surprised shareholders and the public in May, announcing a change in strategic direction which could involve full or partial sale options for some, or all, of its global consumer businesses. These included its integrated New Zealand-Australia business Fonterra Oceania, home to iconic brands such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, and Perfect Italiano.
The milk processor and leading exporter indicated it would seek farmer-shareholder support for any divestment. This means it will need the support of the Fonterra Co-operative Council watchdog.
Investors in Fonterra’s listed dividend-carrying units would not be entitled to vote. The sales assessment process was expected to take 12-18 months.
Stevenson said as the representative of Fonterra’s owners, the council had gathered farmer feedback on the announcement and had sent questions to the board. It expected responses and a discussion on progress when it met the board after Fonterra’s 2024 financial results next week (September 25).
Fonterra Co-operative Council chair John Stevenson says the shareholder watchdog knows nothing more than the public so far. Photo / Supplied
“In terms of the scale of proposals Fonterra has put to farmers in the past, this is right up there. This is a really significant announcement.
“Farmers want to know what this proposal means for them in the short-term but also what our co-operative looks like afterwards.
“Where are we going to invest (the money)? Who are we going to be selling our products to? What are the pros and cons? It’s important that farmers are really well-informed before they make any decisions on this.”
Stevenson said so far Fonterra had kept farmers in the loop in as much as they made the announcement early and advised shareholders when advisers had been appointed.
“But we’re getting to a stage where farmers will be really keen to hear more.”
Fonterra Oceania was created in May this year by the merger of New Zealand and Australian operations. The division comprises consumer, food services and ingredients businesses.
The consumer business review also covers Fonterra Sri Lanka, a consumer and food service product business.
Market analysts have suggested a sale of the global consumer business group could fetch up to $3.5 billion. In FY23 the consumer business contributed $3.3b in revenue and $781m in gross profit to Fonterra’s books. It represented 7% of New Zealand milk solids sold and around 19% of group operating earnings in the first half of FY24. Its brands are most prominent in New Zealand, Australia, Sri Lanka, China, and Southeast Asia.
Fonterra said its strategy direction change called for it to become a world-leading provider of high-value, innovative dairy ingredients.
Meanwhile, the farmer-elected 27-member council has sent its annual letter of expectations to the Fonterra board. The letter is on behalf of Fonterra’s 7900 farmer-owners and milk suppliers. It has also shared the results of its annual survey of Fonterra farmers, which shows a reversal this year of a downward trend of confidence in Fonterra and the dairy industry.
Fonterra's 28 manufacturing sites across the country process around 16 billion litres of milk every year for export as commodity powders, ingredients and consumer products.
Of the 887 survey respondents to the proportional survey, 64% were confident in the long-term sustainable future of Fonterra, compared to 54% last year, with 60% confident of the dairy industry’s future (52%).
The letter of expectations seeks to define success from the collective perspective of owners, investors, suppliers and members of the cooperative community, and provide “a basis to hold the board to account”.
Over the next month the council will assess the extent to which its 2023 letter has been met. The assessment, and the board’s response, will be included in the council’s 2024 annual report.
Responses from the independently conducted annual survey of farmers provide a solid basis for the letter of expectations, Stevenson said.
“It doesn’t leave much room for backwards and forwards in terms of what is the sentiment of the members.”
The expectations in the 2024 letter varied little from that of last year’s because farmers were consistent in their survey responses to what they required of Fonterra, Stevenson said.
Headline expectations are that the Fonterra board ensures transparency of the company’s strategy, plans and targets over the short and longer-term; Fonterra is to set aspirational but achievable performance targets and to transparently report against them; that Fonterra’s plans enhance members’ farming businesses; that there is genuine consultation with members; that members’ capital is to be respected, allocated and managed effectively to maximise returns on investment; that Fonterra invest in research and development and to innovate to maximise the value of their milk.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the $26 billion dairy industry, agribusiness, exporting and the logistics sector and supply chains.
