Major dairy company, the New Zealand-based Fonterra, has announced it will sell its Australian arm as part of a change to its international businesses.
The news has provoked speculation about whether the existing dairy companies will try to snap it up, leading to a concentration of dairy processors, or whether a new player could emerge.
The big processor employs about 1600 people in Australia and takes milk from hundreds of suppliers.
Last financial year the Australian arm produced a $20 million after tax profit, which was affected by the higher prices being paid for raw milk product.
VFF UDV president Bernie Free said the best outcome from the sale would be the breaking up of the Australian factory network and the introduction of new players, which would add to competition in the dairy processing sector.
Less desirable would be the purchase of the whole company by existing processors, or the sale to Coles or Woolworths seeking vertical integration, he said.
One outcome could see Fonterra New Zealand importing more dairy products into Australia.
Mr Free said the news was not a surprise as Fonterra had endeavoured to sell off the Australian arm some years ago.
“It’s no surprise they might try again.”
In its 2023 reported results, Fonterra Australia delivered EBIT of NZ$75 million (A$69.3 million). In real terms, Fonterra Australia’s actual earnings were NZ$102 million.
Fonterra chief executive officer Miles Hurrell said a review led to a focus on being a B2B dairy nutrition provider, working closely with customers.
“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,” Mr Hurrell said.
Fonterra Oceania was recently created through merging Fonterra Brands New Zealand and Fonterra Australia.
“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,” Mr Hurrell said.
“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.”
Fonterra said it will be prioritising returns for its New Zealand farmer shareholders and unit holders in the transaction.
The Business Council of Co-operatives and Mutuals sees the announcement as another blow to dairy farmers and a reminder about the precarious nature of food security.
Chief executive Melina Morrison said this move could result in greater concentration of ownership of Australian dairy assets, which would impact not only farmers but also consumers at the supermarket checkout.
“The story of consolidation of Australian dairy assets is a sorry tale,” she said.
“As big business interests have come to dominate Australian dairy, we have lost most domestic control and influence over a staple product essential to Australian consumers.
“Australian farmers are bystanders as our former great commodity businesses are traded between other owners.
“What we have seen instead is a concentration of milk processing, including into the hands of retailers after the regulatory green light was given to Coles’ purchase of processing plants from Saputo.
“The danger now is that we could see more and more dairy farmers potentially squeezed out of the market because of pressure on farm gate prices, driven by the need to satisfy shareholder returns rather than promote the sustainability of those producing our milk,” Ms Morrison said.