Giant dairy co-operative Fonterra has surprisingly unleashed plans to divest its global consumer business, which includes household name brands such as Anchor and Mainland.
Fonterra made the announcement to NZX on Thursday and said it was looking at a timeframe of 12-18 months to achieve a sale.
According to Fonterra, the consumer and associated businesses that are being put on the block - which include Fonterra Oceania and Fonterra Sri Lanka - collectively utilised approximately 15% of the co-op’s total milk solids and represented approximately 19% of Fonterra’s group operating earnings in the first half of the 2024 financial year.
From a public perspective, the announcement from Fonterra appears to have come out of the blue, as the co-op, after necessary restructuring, has been performing much better than it was.
But chairman Peter McBride says this is "a significant move" for the co-op which will set it up to grow long-term value for farmer shareholders and unit holders.
"We have conducted a strategic review which has reinforced the role of our core business. This is working alongside farmers to collect a sustainable supply of milk and efficiently manufacture products valued by customers, to deliver strong returns to farmer shareholders and unit holders."
Fonterra’s global Consumer business has grown over the years since Fonterra was formed and is performing well, Fonterra says. It includes a portfolio of "market leading" brands such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano and others.
Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia, Fonterra says. It comprises Consumer, Foodservice and Ingredients businesses. Fonterra Sri Lanka comprises Consumer and Foodservice businesses.
In a separate announcement, also on Thursday, Fonterra said Global Markets CEO Judith Swales had decided to leave the co-op.
Chief executive of Fonterra Miles Hurrell said a divestment of these assets would help create "a simpler, higher performing co-op with our focus on our core Ingredients and Foodservice business and doing what we do best".
“While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfil Fonterra’s core function of collecting, processing and selling milk. Due to our co-operative structure, we believe prioritising our Ingredients and Foodservice channels and releasing capital in our Consumer and associated businesses would generate more value.
“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."
The announcements from Fonterra give no indicative figures - but presumably the expectation is for a substantial return.
A separate presentation released by Fonterra on Thursday showed that the assets up for sale made $190 million of the co-op's $986 million operating earnings for the first half of the current financial year. The assets produced $2.7 billion of the $12.1 billion half-year revenues for Fonterra.
Fonterra is now going to appoint advisors to assist with assessing divestment options.
“We recognise a divestment of this scale would be significant for Fonterra. Throughout this process we will be considering how best to maximise overall returns to our farmer shareholders and unit holders.
“The choices we make when considering divestment options will be driven by a clear-eyed view of the best value creating pathway for the Co-op – both in terms of the potential proceeds from a sale and the ability for Fonterra to generate consistent economic returns over the long-term.
“Any decisions about use of net proceeds from a sale will be guided by our Resource Allocation Framework, which allocates funds to debt repayment, investment to support our strategy and distributions to shareholders and unit holders.
“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,” Hurrell said.
This is the announcement from Fonterra:
Fonterra announces step-change in strategic direction
Fonterra Co-operative Group Ltd has today announced a step-change in its strategic direction, as it commits to deepening its position as a world-leading provider of high-value, innovative dairy ingredients.
As part of this, the Co-op has announced it is exploring full or partial divestment options for some or all of its global Consumer business, as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka.
Chairman Peter McBride says this is a significant move for the Co-op which will set it up to grow long-term value for farmer shareholders and unit holders.
“We have conducted a strategic review which has reinforced the role of our core business. This is working alongside farmers to collect a sustainable supply of milk and efficiently manufacture products valued by customers, to deliver strong returns to farmer shareholders and unit holders,” says Mr McBride.
CEO Miles Hurrell says the review has also given the Co-op confidence in the role it plays in the dairy nutrition value chain, with one of its greatest strengths being the production of world-class, innovative ingredients for customers to take to consumers.
“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 Foodservice channels.
“This will be enabled by strong relationships with farmers, a flexible manufacturing and supply chain footprint, deeper partnerships with strategic ingredients customers, further investment in our Foodservice channel, continued delivery on our sustainability commitments and investment in innovation.
“In this context, we are exploring divestment options for our global Consumer business as well as our integrated businesses Fonterra Oceania and Fonterra Sri Lanka,” says Mr Hurrell.
Fonterra’s Consumer and associated businesses
Fonterra’s global Consumer business has grown over the years since Fonterra was formed and is performing well. It includes a portfolio of market leading brands such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano and others.
Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia. It comprises Consumer, Foodservice and Ingredients businesses. Fonterra Sri Lanka comprises Consumer and Foodservice businesses.
Collectively, the businesses in scope for potential divestment utilised approximately 15% of the Co-op’s total milk solids and represented approximately 19% of Fonterra’s group operating earnings in the first half of FY24, with our Consumer businesses delivering strong underlying earnings.
“A divestment of these assets would help create a simpler, higher performing Co-op with our focus on our core Ingredients and Foodservice business and doing what we do best,” says Mr Hurrell.
“While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfil Fonterra’s core function of collecting, processing and selling milk. Due to our co-operative structure, we believe prioritising our Ingredients and Foodservice channels and releasing capital in our Consumer and associated businesses would generate more value.
“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.
“This presents a great opportunity for these brands and businesses. While I recognise there’s a strong connection to brands such as Anchor, a new owner could help these businesses to flourish.
“We have also received unsolicited interest in parts of these businesses, making now a good time to consider their ownership,” says Mr Hurrell.
Next steps
As a next step, Fonterra will appoint advisors to assist with assessing divestment options.
“We recognise a divestment of this scale would be significant for Fonterra. Throughout this process we will be considering how best to maximise overall returns to our farmer shareholders and unit holders.
“The choices we make when considering divestment options will be driven by a clear-eyed view of the best value creating pathway for the Co-op – both in terms of the potential proceeds from a sale and the ability for Fonterra to generate consistent economic returns over the long-term.
“Any decisions about use of net proceeds from a sale will be guided by our Resource Allocation Framework, which allocates funds to debt repayment, investment to support our strategy and distributions to shareholders and unit holders.
“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,” says Mr Hurrell.
Fonterra’s long-term strategy
In 2021, Fonterra released its long-term strategy Our Path to 2030 which included financial targets out to 2030.
These targets were based on a strategy which included the businesses that are now in scope for potential divestment and, in these circumstances, it is appropriate for Fonterra to withdraw these financial targets.
It is also appropriate for Fonterra to terminate its on-market share buyback programme, which was expected to run until 13 August 2024.
“At all times, we remain committed to maximising returns through the Farmgate Milk Price and dividends, and achieving a strong return on capital that is greater than farmers’ cost of capital.
“Fonterra will continue to provide updates on our forecast Farmgate Milk Price and earnings guidance as part of our quarterly reporting process or as required. Our FY24 forecast earnings are not impacted by this announcement.
The Co-op’s sustainability targets and associated investment plans remain unchanged. Fonterra also remains committed to improving cost efficiency across the Co-op and will continue to report progress against efficiency measures annually.
“Through our work to date, Fonterra has strong foundations which puts us in the position to consider where we will next invest for long-term growth.
“We intend to provide a further update on our revised long-term strategy in due course. This will include further detail on our plans to grow the long-term value of Fonterra and the measures through which we will track our progress,” says Mr Hurrell.
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90 Comments
"Animals are the main victims of history, and the treatment of domesticated animals in industrial farms is perhaps the worst crime in history."
-Yuval Noah Harari
One day, perhaps in one hundred years or so, we will look back in horror at how we treated animals. Is everyone actually aware of where their milk comes from?
Dairy cows live a nightmarish cycle of:
-forced impregnation,
-distressing separation from their babies (who are mostly killed - millions a year in NZ),
-we then steal the milk intended for the now dead babies, birth after birth, until their tired bodies are too worn out to produce any more,
-at which point, no longer having any use to the farmer, their throat is slit and their sad and miserable life is ended.
You don't have to be a tree hugging greenie to sense that this isn't quite right. Especially as it's totally unnecessary. So much suffering, just for a few seconds of tastebud pleasure.
The cows are animals, mate.Humans up here, animals down there. More importantly, Fonterra obviously think that by divesting themselves of their consumer retail brands, they will be then able to sell to the people who compete with them, as well as them. If I see Anchor butter at the shop with, "made in Ireland', on it, I will not be happy though. It is a bit risky. But we all know how their expansion in China went. Maybe just being a producer and wholesaler to anybody who wants to buy off them might be the way to go. Except that the massive Crony Capitalist multinationals they will be dealing with are not famous for looking after their suppliers.
Incorrect. If we combine global grazing land with the amount of cropland used for animal feed, livestock accounts for 80% of agricultural land use. The vast majority of the world's agricultural land is used to raise livestock for meat and dairy. Crops for humans account for 16%.
Have you subtracted the land that cannot be practically cropped from your calculations? Many farms are suitable for grazing because the stock can stand on hillsides that are unsuitable for heavy machinery. We could employ people to do the harvesting by hand, but the availability of food would likely plummet, while the cost of food would likely skyrocket.
Perhaps a co-dependent policy should be considered, whereby all housing is built upon the steepest, least-accessible land, so lands that are easily cropped are left for agricultural purposes.
Surely most crops raised for livestock feed are by extension raised for human consumption? How does this change the calculation?
That's right General Comment, particularly in NZ's case. As we have very little arable land. Grazing suits us to a degree. Unfortunately there is a lot of our country that we are farming that is unsuitable for livestock but looking at what farmers are growing food on in parts of Asia we could grow crops on some steep land. Welcome to peasantry.
If we combine global grazing land with the amount of cropland used for animal feed, livestock accounts for 80% of agricultural land use. The vast majority of the world's agricultural land is used to raise livestock for meat and dairy. Crops for humans account for 16%
Could you please link your sources for this assertion? I'd be interested to read further into that and if they are credible.
Fundamentally all plant products contain poisons as natural defenses against insects. Otherwise they'd just be gobbled up straightaway unless contained inside hard shells. Soy beans can kill rats. Soy beans need to be carefully processed before consumption.
The iron found in plants is different to that found in animal flesh and is not easily absorbed.
These things can be discovered with quick Internet searches.
Not eating meat for ethical reasons is commendable however we are a meat producing country so I don't feel too bad about making these comments on a thread about the production of animal foods.
I certainly do not follow Tate or Rogan however I do consider the YouTuber called Goatis to be a sort of guru and am awestruck by Ann Vo. I haven't progressed to consuming raw meat yet but do recommend medium rare scotch fillet for the best health benefits.
Good on you - Veganism is a luxury belief and lifestyle choice for wealthy societies – who got that way because they included healthy animal proteins and fats in their diets
Vegetarianism is a lifestyle choice and diet that works for the poor but is still not ideal
Everything is a "lifestyle choice". Exploiting innocent animals for taste pleasure is a "lifestyle choice".
You realize fruit and vegetables are vegan, right? Are you trying to argue that some people must buy cheese, steak etc because they can't afford produce? What even are you trying to say?
Everything is not a lifestyle choice when you are poor in a poor society, You need to eat the most nutrient-dense healthy food available to you and your family.
Being a Vegan is a fun identity for the wealthy Westerner who can afford the time and money to get regular blood tests and buy supplements– which is fine, it is what it is but let’s not pretend it is noble
This is a seriously-feeble Joe Rogan-grade argument you're making.
Why don't you speak for yourself, instead of invoking your vague, imaginary demographic?
The "most nutrient dense healthy food" is categorically fruit and vegetables. You are surely not trying to suggest that sausages are a better calorie/dollar purchase than rice and beans, for example? Or that mince offers more micro nutrients/dollar than bananas, for example? What world do you live in?
Fruit and vegetables are not the most nutrient dense foods. Bananas have few "nutrients". There is a big difference between energy dense foods and nutrient dense foods. The main problem with diets today is that they provide too much energy. This can feed cancer and produce all sorts of metabolic disorders. It's like people are running high octane aviation gas on an engine designed for diesel. You want us to live on rice and beans? These are toxic foods.
The species appropriate food for the human is meat supplemented with tiny amounts of fruits and vegetables. These enables us to go long periods without eating which helps our bodies stay healthy. People are dying of diabetes, cancer, dementia and so on, all due to eating high energy food all of the time.
How are you in any way phased or offended that someone chooses what they wish to eat if it is different to your own personal choices? How in any way does this impact your individual day to day life? You make the choices you are happy with based on your beliefs, and nobody says otherwise. Perhaps learn to appreciate variety in life, no that you need to eat meat or dairy, just that we as humans have the freedom of choice. If you can't do this, then you'd be akin to the Christian raiders of old, demanding others convert to christianity or perish, which is neither intelligent or open minded.
Hi interesting1234,
I'm not "fazed" at all. However, you seem to be missing the point. It is not, in fact, a "personal choice" when there is a victim. You are making a severe choice on behalf of someone else. But what gives you the right to play God, and end the life of another being? Just because something is legal, doesn't make it ethical.
You'll probably reply with something like "food chain", "cycle of life" or "humans have always done it".
None of this is justification. Just excuses. There is no nutritional requirement to eat animals. We do it purely for pleasure.
Perhaps you've never had a pet, or even really been around animals. if you had seen that they are just as capable of emotions like joy, affection, sadness and fear, maybe you'd have at least an ounce of compassion within you.
While I didn't alter my diet due to Zachery, I basically have done what he has suggested re diet starting 2022 (red meat/fat and intermittent fasting 16+ hours without eating per day). It took me from 135 to 96 as weighed at my doctors (I never weighed in-between). But the key point is that I don't get hungry, usually eat once a day, sometimes not at all.
It's a lot easier to keep weight off if you don't feel hungry - nothing is off the menu either i.e. I eat whatever I like but the focus is meat with its fat but I don't need to have meat every meal. I had cancer I would tighten it down to eliminate sugar.
There are a lot of people reporting health benefits from a diet along what Zachary prescribes (myself included) and therefore I would encourage people to try it for themselves. Especially if they have health/diet issues or just want the freedom of choosing when to eat like I enjoy.
Agree Zachary. I've felt the benefits of fasting and a high meat/animal fat diet myself. Never feel hungry (fat adaptive), constant energy levels - the only thing that stuffs it up is when I overdo carbs.
According to my doctor all the things they measure improved and was told to keep doing whatever I am doing. It would appear there could be a massive improvement in health outcomes as per your final sentence.
An improvement I experienced, also reported by others, is with mental wellbeing. As a natural remedy for depressive feelings, anxiety, even OCD, it is remarkable. I distinctly remember the world becoming much more colourful and feeling a little hyper. It may be due to the brain running on ketones. People should study it for themselves, there's a lot of information on YouTube, and perhaps give it a go for 60 or so days and just observe what happens.
The benefits of intermittent fasting are enormous and scientifically backed. I do it too and feel amazing. But by doing your all meat diet at the same time, you're almost certainly conflating two things and attributing results of one to the other. I also suspect you may face declining arterial health in the future.
Time will tell. There are currently no scientific studies that definitively prove the effects of the carnivore diet one way or the other. However, most people who go this far keep a close watch on their health indicators. I monitor my weight, medical results and blood pressure amongst other things. I ensure I get enough exercise (not too much), sleep and moderate sun exposure all year round. I never got COVID and take no medication at 64.
I was impressed by a recent study called, "The evolution of the human trophic level during the Pleistocene" which concluded that humans evolved to become hyper-carnivores during the two million plus years of the Pleistocene.
I'm not super strict and do have moderate dairy, coffee and the odd piece of fruit as a treat when my body craves it. If I developed cancer or signs of dementia I would immediately go super strict. My skin tags falling off were a sign to me that this way of eating was powerful. Other indicators like mental health, dental health, no sun burn, no aches and pains, no body odour and generally just feeling splendid reinforced my confidence. I understand vegans can report similar things however I am seeing more vegans/vegetarians switch to carnivore these days although I might just be falling victim to the algorithms.
The key factor may be reduced energy density of the foods we eat.
The Guardian is an illogical, extreme woke publication. Most dairy farms treat their animals with respect - a healthy, happy cow is a productive cow.
If we all went vegetarian we would starve - its impossible to get the calories we need as humans from non-animal sources for the global population.
BTW when will the Guardian report on the horrific and babaric killing of grazing animals that lions, tigers etc do on a daily basis? Or is it good to get rid of ruminant grazing animals because they produce methane? Or will they once again produce stupid reports from vegans that suggest we will all be eating fake protein in 10 years time?
Consume less, of better quality and we will all be better off. https://www.forbes.com/sites/katiechang/2019/02/12/first-light-best-bee…
Not. A. Chance.
Offshore private equity will pick these up initially ... You'll note the references to 'advisers'? I'd guess they're already there. ... Then private equity will get bored and on-sell to established market / sector players who know how to manage and develop these businesses.
NZ diary farmers will eventually get screwed because they'll become just another supplier to the people who best understand their consumers.
Cancelling DIRA would be great for Fonterra, the last government went at least a little way there and did away with some parts and loosened others. This is a national government though and despite their purporting to be otherwise, history ( 2012 rewrite of the act) tells us they most definitely do not support deregulation of dairy.
Going to be interesting to see how this goes, you'd have to presume they've done the figure's and wouldn't be surprised if bulk specialist powders are the way to go. Sometimes the KISS principal works.
I'll admit I'm not sure, more puzzled really. The items for sale seem profitable . I just wouldn't jump on the fonterra must be wrong, valued added best bandwagon just yet. For instance while the Tip Top sale may have seemed wrong on the surface the infrastructure was as I understand an absolute antique, so good money for old rubbish. But this does seem an even bigger directional change, interesting.
Yes, that is what I mean. Some fonterra plant even predates me entering the industry. It's not necessarily dangerous but it is outdated and certainly has little or no book value, some only runs for a couple of months over spring.
Fonterra and NZD before it were notorious for delaying maintenance so not necessarily a recent Fonterra board problem.
Yeah I would have to agree with you there Te Kooti, just look at what we are doing in the forestry sector. Heaps of innovation going on. Of course we will keep selling logs but at the same time, diversifying into all sorts of value added products is gaining momentum.
Arla Foods UK already is the home of the Anchor brand in UK. Anchor – the leading brand of British-made butter– is launching a new look to proudly showcase its Britishness
https://www.arlafoods.co.uk/overview/news--press/2017/pressrelease/anch….
Not a great time to be selling any sort of asset. Property or business. Look at Synlaits' failed efforts to date.
Such a wholesale unloading of assets - I am going to need some persuading before I vote for this.
Selling non or underperforming businesses I can understand. But McBride is talking about businesses that finally appear to be performing with upside ahead.
Are the banks putting pressure on our larger suppliers to reduce debt? Because any capital return to shareholders is going to benefit the big operators who have held and/or increased their shareholding recently.
Or is Nestle putting the squeeze on Fonterra to not compete and supply at the same time?
The stainless (which is all we will be left with) is already showing signs of under utilization and at some sites less than stellar performance.
Chief executive of Fonterra Miles Hurrell said a divestment of these assets would help create "a simpler, higher performing co-op with our focus on our core Ingredients and Foodservice business and doing what we do best".
Fonterra's food service business in Vietnam is branded as Anchor. They obviously believe that it will have no impact on their business through brand divestment.
It will eventually. The new Mainland will be free to get the cheese from whomever they want.
Thus when they switch away from Fronterra is made, you'll probably not notice. Or if you do, you are mildly disappointed that it doesn't quite taste the way it used to but still keep buying it.
this is on the surface a dumb decision BUT i wonder how much of it is related to climate change targets and restrictions that customers and countries will place on fonterra in the future and rather than spend a lot of money (nestle spent 1.2 billion last year) they are just going to pocket the profit now and let someone else deal with that problem and after watching the groundswell submission to the environmental committee the chances are we as a country will be nowhere near any targets set
Maybe you are right and Fonterra wants to avoid dealing with this: https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanis…
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