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Fonterra puts its Australian dairy assets up for sale

fonterra australian dairy assets for sale dairynews7x7

Fonterra has put its Australian business, a major supplier of milk, up for sale in a move that has farmers concerned about shrinking competition in the processing sector.

The New Zealand-based dairy giant – behind household brands such as Western Star butter, Mainland cheese and Perfect Italiano cheese – has eight manufacturing sites spread across Victoria and Tasmania. It employs about 1600 people and collects about 1.4 billion litres of milk annually from hundreds of Australian farmers.

Fonterra puts its Australian dairy assets up for sale - Dairy News 7X7
Fonterra’s Whareroa factory in New Zealand. The company, the world’s top dairy exporter, says it is considering selling its Australian business. Bloomberg

The sale is expected to dwarf the $1.3 billion paid by Saputo to secure Murray Goulburn six years ago and Bega’s $560 million acquisition of Lion Dairy and Drinks in 2021 amid consolidation in the Australian dairy sector. The Australian operations are for sale as part of a divestment of Fonterra’s Oceania division. The co-operative is also considering the sale of all of its global consumer business and Fonterra Sri Lanka.

Aaron Thomas, a Gippsland farmer who supplies Fonterra, said he received a notice from the company outlining its sale plans on Thursday morning.

Mr Thomas said he hoped a new entrant emerged and warned an acquisition by Saputo and Bega, or other major processors, would be bad for farmers. “It needs to be a new player to drive that competition. If it is sold to Bega or Saputo, or other existing processors in Australia, I think it will be detrimental to all of us,” he said.

Fonterra chief executive Miles Hurrell said the company was exiting Australia and other jurisdictions because it wanted to focus on its core business of supplying high-value dairy ingredients. “We believe we can grow further value for the co-op by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing ingredients and food service channels,” he said.

Fonterra puts its Australian dairy assets up for sale - Dairy News 7X7
CEO Miles Hurrell wants to focus on high-value dairy ingredients.  Bloomberg

The sale process raises the prospect of more consolidation in the Australian dairy industry. Last year, the Australian Competition and Consumer Commission gave a green light for Coles to buy two processing plants in Melbourne and Sydney from Canada’s Saputo. The sale marked the first time a large retailer has owned processing plants, having previously relied on dairy producers to make home brand milk.

E&P Capital said Fonterra’s Oceania business would be of interest to Bega. “In our view, Bega’s highest interest levels would be in Fonterra’s Australian operations. However, we would not rule out interest in the other regions, such as New Zealand,” wrote E&P analyst Phillip Kimber.

There is already a relationship between the two companies; Fonterra markets and sells the Bega cheese brand under licence, paying millions of dollars in royalties.

Rabobank senior dairy analyst Michael Harvey said Fonterra processed about 17 per cent of Australia’s milk pool and was one of the big three alongside Bega and Saputo.

Mr Harvey said the sale of the Fonterra business – given the volumes it processed – was a major event for the Australian dairy industry.

“We’re in a five- or six-year period of major transformation in the downstream sector for dairy here in Australia, with footprint adjustments, plant closures and some changes of ownership,” he said. “There is a focus on strategy for the companies here because pressure points are being forced on them. The milk pool is down, prices are up and cost of production pressures on business owners are forcing a lot of change.”

Any transaction will require the approval of the competition regulator.

Bega was only able to secure Lion Dairy and Drinks after then treasurer Josh Frydenberg rejected a proposed $600 million acquisition from China Mengniu Dairy.

Fonterra’s decision to consider a divestment comes after a strategic review and on the back of receiving unsolicited offers for the assets now on the market.

Collectively, the businesses up for sale use about 15 per cent of Fonterra’s milk supply and represent about 19 per cent of operating earnings in the first half of this year.


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Mr Hurrell said while they were “great businesses”, their ownership did not fulfil New Zealand-focused Fonterra’s core function of collecting, processing and selling milk.

“At the same time, we believe Fonterra is not the highest-value owner of the consumer and associated businesses in the longer term and a divestment could allow a new owner with the right expertise and resources to unlock their full potential,” he said.

The company has previously considered selling its Australian business, and in 2021 flagged it could attempt to demerge the division and list it on the ASX.

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