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Fonterra’s ‘Step Change’ Raises Concerns Among Dairy Farmers

Farmers are concerned that the sale of dairy giant Fonterra’s Australian assets could drive the prices they get for their milk further down.

The New Zealand company, which owns Western Star butter, Perfect Italiano cheese, and the Mainland brands, operates eight manufacturing sites across Victoria and Tasmania and employs some 1600 people.

Chief executive Miles Hurrell has confirmed a “step-change”, a move that could include selling its Australian assets.

“We are exploring divestment options for our global consumer business as well as our integrated businesses Fonterra Oceania and Fonterra Sri Lanka,” he said on May 16.

“We expect a divestment process to take at least 12 to 18 months. If we were to proceed with a divestment of this size we would seek shareholder support.”

Fonterra had already received unsolicited advances regarding parts of the business, Mr. Hurrell said, “making now a good time to consider their ownership.”

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The processor collects around 1.4 billion litres of milk annually from hundreds of Australian farmers.

One, Gippsland producer Aaron Thomas, said the news had spooked some in the industry.

“This type of language, from any processor, just adds another level of uncertainty,” he told AAP.

Mr. Thomas said any sale must not reduce competition in an already shrinking market.

“My hope is if Fonterra do sell the Australian arm or parts of their business, an outsider or new player is the purchaser and not an already Australian-based processor.”

Dairy Farmers Victoria president Mark Billing agrees.

“The concern for dairy farmers in Victoria is that if it takes competition out of the market, particularly if one of the other big multinationals does come in and buy it,” he said.

The decision represents a shift for Fonterra, which determined to retain its entire Australian business after a review three years ago.

“That was in a different context, for example, only Australia was in scope,” a company spokesperson told AAP.

Any sale could eventually impact consumers according to the Business Council of Co-operatives and Mutuals.

“This move, if it results in greater concentration of ownership of Australian dairy assets, will impact not only farmers but also consumers at the supermarket checkout,” the council’s head Melina Morrison, said.

According to dairy farmer and Victorian president of United Dairy Farmers Bernie Shaw, “less competition generally means that there’s less risk of people competing for your milk.”

However Rabobank senior dairy analyst Michael Harvey said a deal prompting competition concerns would need to be approved.

“That will be for the regulators to tick off,” he said.

“It depends on who buys it.”

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