The withdrawal of Fonterra from processing in Australia’s dairy industry could open the gates to a flood of imported dairy products, several dairy leaders have speculated.
Fonterra announced last week it was putting its Australian business up for sale.
While Australia has had limited exposure to competition from New Zealand, two dairy leaders have questioned whether the exit could lead New Zealand to send more of their product into the Australian market.
There are a number of theories swirling around the industry about Fonterra’s strategy, the timing of the sale, and the announcement of the departure of a senior executive, on the same day as Fonterra announced its restructure.
Global markets chief executive officer Judith Swales, who was Australian Fonterra CEO at the time of the controversial cut to milk prices in 2016, is leaving the company.
Current Fonterra CEO Miles Hurrell said the change in the co-operative’s strategic direction presented a natural juncture at which Ms Swales had considered her future.
“Judith has been an important part of Fonterra since 2013, having started her time in our Australian business,” Mr Hurrell said.
“She has held a variety of significant leadership roles across the co-op and has been a critical part of the Fonterra management team.”
Ms Swales will leave Fonterra on July 31.
Fonterra has given limited information about the sale of its Australian arm.
Dairy Farmers Victoria president Mark Billings noted the announcement of the sale was only a couple of weeks out from the deadline for factories to announce their new season’s milk price, although he doubted Fonterra would jeopardise its prospects of a good sale price by forcing down prices.
Mr Billings didn’t think it was a surprise, as over the past two years the company had discussed divesting its Australian arm.
He said Fonterra New Zealand, which paid a lower price for milk, might look at Australia as a new market for their product
“At the moment, New Zealand dairy farmers are some of the lowest paid globally, and New Zealand might like to take advantage of that.”
Mr Billings said the Fonterra factory network across the three main dairy areas in Gippsland, western Victoria and northern Victoria made an attractive opportunity.
But he didn’t believe there was a single buyer who could be well positioned to buy all of the businesses, including the factories.
“It would be nice if we retain some brand names like Western Star, which was developed in south-west Victoria. It would be nice to have it back in Australian hands.”
While some of the reasoning behind the strategy was difficult to fathom, Mr Billings said it was clear Fonterra was exiting milk pools around the globe, as their decisions in China, Argentina and Sri Lanka indicated.
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.