What’s the big deal, and how locally owned are our dairy aisles anyway?
Every day supermarket shoppers stand in the chiller aisle, doing mental maths as they choose between Kāpiti gouda ($6.66/100g) and Mainland tasty cheese ($3.76/100g). The brand names may be different, but both are owned by Fonterra. Or at least, they were, until it agreed to sell them to the French dairy giant Lactalis (Lac-ta-leees).
OK wait, what has Fonterra sold and why?
Fonterra surprised everyone last year by announcing plans to sell its consumer brands part of the business. Billed as a “step change” (others called it “the most dramatic major structural change in its 23-year history”), it meant the co-op could focus on business-to-business ingredients and food service, and its operations in China. Now it’s got a buyer and a multibillion-dollar deal.
Lactalis is prepared to pay $4.22 billion for Fonterra’s global consumer business and brands, excluding greater China, plus its integrated foodservice and ingredients businesses in Oceania and Sri Lanka, as well as its Middle East and Africa foodservice business, plus the licences for Bega Cheese Limited (held by Fonterra’s Australian division) in the divestment deal, which includes three manufacturing sites in New Zealand and more offshore.
Part of the deal is a 10-year agreement for Fonterra to sell milk to Lactalis, which the company says means “New Zealand farmers’ milk will still be found in iconic dairy brands including Anchor and Mainland.” They’ll be owned by Lactalis, as will Kāpiti, Perfect Italiano, Mammoth, Primo, Fresh’n Fruity, De Winkel, Fernleaf and CalciYum.
Fonterra’s “targeting a tax-free capital return of $2 per share”, and the whole deal is subject to Fonterra farmer shareholder approval. Voting should take place around October/November, and 51% in favour is required for the deal to go through. If that happens (and other conditions of the deal are met), the sale should be completed in the first half of next year.
Wait, remind me how Fonterra works again?
It buys raw milk from dairy farms, processes it and sells it. It was established in 2001 after an act of parliament approved the merger of the New Zealand Dairy Board, New Zealand Dairy Group and Kiwi Co-operative Dairies, and its formation was “heralded as a key move in the country’s economic transformation”. Overseen by a board and a CEO, Fonterra is a co-operative, owned by 11,000 dairy farmers (shares are proportional to milk production) who vote on matters concerning the company and, as shareholders, benefit from its earnings – the highest revenue of any New Zealand company. It collects 14 billion litres of milk annually and accounts for 30% of the global dairy industry, spanning 140 countries.
And what is Lactalis?
The biggest dairy company in the world, actually. Founded in 1933 in western France, the family-owned business operates in more than 50 countries, with 266 dairies and factories, 85,500 employees and €30.3bn turnover. It manages over a hundred different brands globally.
So what’s the reaction been?
The Fonterra board’s happy, calling the sale “the highest-value option for the co-op” and a chance to “deliver further value for farmer shareholders and New Zealand”. Chairman Peter McBride acknowledged “many farmers would have mixed feelings, having helped build brands like Anchor and Mainland”.
Forsyth Barr analyst Matt Montgomerie told The Post, “Fonterra had historically been poor owners of these brands”, with underwhelming margins and returns, making the sale a smart move. Economic commentator Sam Stubbs, asking “did Fonterra just fail New Zealand?” in an opinion piece for the Sunday Star Times, pointed out that “the party that is closer to the consumer is ultimately the one with pricing power”.
Farmers Weekly’s Hugh Stringleman described it as “an end to international expansion and a circling of the wagons”, noting Fonterra can instead focus on “sought after” commodities like milk powder and milkfat products, while Alan Emerson declared the sale “good news for dairy farmers specifically and the country as a whole”.
Lincoln University professor Alan Renwick said moving away from a diversified business risked putting all Fonterra’s “eggs in one basket”, because it was “easier to be substituted as an ingredients supplier than if you’re at the consumer end where you’ve got brand loyalty”. (After Fonterra sold the European rights to Anchor, manufacturing moved to the UK in 2012.) “Transnational companies will allocate their resources, production and marketing to the one that’s most efficient for them,” he told Farmers Weekly – and in the long run, that supplier might not be a New Zealand business.
Farmers have called it a win-win, netting them a “significant amount of money” that would “flow through the national economy”.
This feels like a huge deal. Is it really?
It is and it isn’t. Milk is big business; the industry produces more than 20 billion litres each year (95% of it’s exported) and employs more than 50,000 people. It’s our biggest primary industry, bringing in $23bn annually, and top export commodity. Fonterra dairy products account for 25% of all New Zealand exports.
Local consumer brands, like Anchor, are a tiny part of the business; in FY24, Fonterra’s consumer business represented “7.5% of the co-op’s New Zealand milk solids”. That’s a global figure, so domestic brands will be a portion of that. But for New Zealanders they’re the most visible part of the operation; we encounter them every day, making a coffee or assembling a sandwich. Hurrell has acknowledged people have “emotional connections to these brands”.
Mainland, Anchor and Kāpiti are among the consumer brands included in the divestment deal.
(The Fonterra deal isn’t the only one making headlines this week. Māori-run dairy processor Miraka sold to Open Country Dairy – owned by the private company Talley’s – which also recently picked up Mataura Valley Milk.)
But how will this affect me and my grocery shop?
Dairy plays an outsized role in our economy and cultural discourse. It’s why the category has become representative of the state of the nation and a political football, whether it’s farmgate milk prices or the cost at the till – which (as you’ll know unless you’ve been living under a rock) has been going up and up. In February, a kilogram of tasty cheese was over $20 at Thorndon New World; by April, butter, cheese and milk had topped Stats NZ figures for biggest price increases (65.3%, 24%, 15.1%) over a 12-month period; butter is an obsession, nearly doubling in price, with people even driving from Taranaki to Costco in Auckland for a bargain.
How much of the dairy aisle is locally owned anyway?
Cyclops for one. And Tautua, which is produced by an independent, farmer-owned co-operative. Whitestone Cheese, Meyer Cheese, Barry’s Bay, Massimo and Jersey Girl are family owned and operated. Fresha Valley is still run by its original New Zealand owners.
Dairy’s New Zealand identity makes for good consumer marketing; Mainland’s southern blokes spent decades waiting for their cheese, and Meadowfresh used The Fourmyula’s hit ‘Nature’ in its early 2000s ads. It was the last of the big brands to use glass bottles, winding up the facility in 2005. Meadowfresh falls under Goodman Fielder New Zealand’s umbrella – so do Naturelea, Tararua Cultured, Bouton D’Or, Chesdale, Yoplait, Ornelle and Puhoi Valley Cheese – which is owned by a Singaporean agribusiness company, Wilmar International.
The nation froths over certain dairy products. Fonterra sold TipTop to UK dairy giant Froneri in 2019, which drew national ire in 2022 by discontinuing its two-litre tubs of Cookies and Cream and Goody Goody Gumdrops, and back in 2014 the country “lost its collective shit” over Lewis Road Creamery’s chocolate milk.
That company, founded in 2012 by adman Peter Cullinane, was sold in 2020 to stakeholder Southern Pastures, a farming investment fund that operates 19 local dairy farms and is owned by a combination of “European pension funds, a New Zealand charitable trust and interests associated with our New Zealand founding directors”, executive chairman Prem Maan said, confirming Swedish pension fund Forsta AP-fonden was the largest stakeholder, owning around 45% of the business.
Though their products are made here, brands like Alpine, Tiptop, Lewis Road Creamery, Meadow Fresh and Westgold are all (technically) now owned by offshore companies.
Dairyworks New Zealand, which also does Alpine and Rolling Meadow, was bought by New Zealand-based B Corp Synlait in 2019. That’s now majority owned by China’s Bright Dairy, with A2 Milk Company a lesser shareholder. (Synlait is reportedly in talks to sell its Pokeno plant to an American company.) Westgold Butter is produced in Hokitika by Westland Milk Products, which has been owned by Chinese dairy giant Yili since 2019.
Locally made goods sit side by side with imported fare. Galaxy cheese might be stamped with Fonterra’s logo, and while the camembert, brie, mozzarella and blue are a “product of New Zealand”, the “creamy Greek style” cheese and feta are from Denmark. So are the brands Lurpak and Yolo. Ghiotti, Zanetti, Parmareggio and De Gustibus are all Italian; Emborg is German but Emborg Saint Paulin is French, as are Babybel and Port Salut; Coombe Castle is British, Food Snob is imported from Bulgaria, Alpro is Belgian, and Laughing Cow is made in Slovakia.
Spinoff favourite Nippy’s is Australian; Liddells, Philadelphia, Moondarra, Hutchinsons, Lemnos, Mersey Valley and Chobani too. So is the holding company that owns Avondale-made yoghurt brand (and certified B Corp) The Collective. And that four-cheese frozen pizza by the New Zealand-owned Pams? That’s made in Italy.
OK but will prices go up?
TBC.