Fonterra, a major New Zealand dairy firm, is selling its Australian operations, which include eight manufacturing sites and key brands. This strategic move aims to refocus on high-value dairy ingredients and food services, leading to potential shifts in the Australian dairy sector and regulatory scrutiny.
Fonterra, the New Zealand-based dairy giant, has announced its intention to sell its Australian business, a major supplier of milk in the region. The move is part of a broader strategy to focus on its core operations of high-value dairy ingredients and food services.
Overview of Fonterra’s Australian Operations
Fonterra’s Australian business comprises eight manufacturing sites across Victoria and Tasmania, employing around 1,600 people. The company collects approximately 1.4 billion liters of milk annually from numerous Australian farmers. The sale of these assets is expected to surpass the $1.3 billion paid by Saputo for Murray Goulburn in 2018 and Bega’s $560 million acquisition of Lion Dairy & Drinks in 2021.
Strategic Shift
The decision to divest follows a strategic review and is aimed at refocusing Fonterra’s efforts on high-value dairy ingredients and food service channels. Fonterra’s move is anticipated to lead to further consolidation in the Australian dairy sector. The company has also received unsolicited offers for its Australian operations, which account for around 15% of Fonterra’s milk supply and 19% of its operating earnings in the first half of the year.
Industry Impact
The potential sale has raised concerns among Australian dairy farmers about the impact on competition within the processing sector. Farmers worry that an acquisition by existing major processors such as Saputo or Bega could diminish competition and negatively affect them. The sale is expected to contribute to ongoing industry consolidation, which has already seen significant changes in ownership and processing capacity.
The Australian Competition and Consumer Commission (ACCC) will review any transaction to ensure it does not adversely affect market competition. This scrutiny follows recent regulatory approvals for other industry deals, such as Coles’ acquisition of two processing plants from Saputo.
Future Prospects
Fonterra’s Australian assets, including brands such as Western Star butter, Mainland cheese, and Perfect Italiano cheese, represent a significant portion of the company’s operations in the region. The decision to sell aligns with Fonterra’s strategy to streamline its operations and enhance focus on its core business areas. The company had previously considered options such as demerging its Australian division and listing it on the ASX.
As the sale process unfolds, it will likely influence the dynamics of the Australian dairy industry, potentially reshaping market competition and processing capacities.
