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Potential Impact on Dairy Prices as Fonterra Considers Selling Consumer Brands

New Zealand 20.05.2024
Source: The DairyNews
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Fonterra, a major player in the global dairy industry, is contemplating the sale of its renowned consumer brands as part of a strategic pivot towards becoming a global business-to-business provider of dairy nutrition products. The brands potentially on the selling block include household names such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, and Perfect Italiano.
Potential Impact on Dairy Prices as Fonterra Considers Selling Consumer Brands
Collectively, these brands utilized about 15 percent of the co-op's total milk solids and contributed around 19 percent to its underlying profit in the first half of this financial year.

According to Massey University marketing professor Bodo Lang, there are significant drawbacks to Fonterra’s proposed divestiture. Lang expressed concerns that selling these brands, possibly to an overseas conglomerate focused primarily on profit, could lead to higher dairy product prices for New Zealand consumers. He also warned of the potential loss of the cooperative's "face," as these brands are integral to Fonterra's domestic identity and success.

Lang remarked on the surprise move by Fonterra, noting the attractiveness of the business and its portfolio, which has apparently led to interest from multiple potential buyers. He also highlighted the risk that a change in ownership could alter the product characteristics, such as flavor, that consumers have come to expect.

Fonterra's CEO, Miles Hurrell, stated that divesting the consumer brands would simplify the company's operations and allow it to concentrate on producing ingredients for other dairy companies. He emphasized that any sale process would be thorough, taking between 12 to 18 months and requiring shareholder approval.

Contrasting with Lang’s concerns, Agriculture Minister Todd McClay downplayed the potential impact on consumers, citing increased market competition over recent years. McClay praised Fonterra's strategic shift towards valuing innovation and partnerships that promise higher returns for farmers, echoing a global trend among dairy producers focusing on value-added products.

Minister McClay, who also serves as the Trade Minister, shared his observations from abroad, noting a growing interest in partnering with New Zealand companies for value-added dairy products. He expressed confidence in Fonterra’s reputation management throughout the sale process, if it proceeds, ensuring that any decisions will protect the cooperative's esteemed standing globally.