Fonterra needs to provide greater detail on its plans, say dairy bodies

Fonterra has again raised the issue of divestment of its Australian operations, but Dairy Farmers Victoria (DFV) president Mark Billing, Colac, said last week's media release was "very ambiguous".

"We are trying to understand what it actually means, are the brands linked with the processing facilities, or will they be sold as separate entities?" Mr Billing said.

"The release created more questions than it answered and we are trying to understand what that actually means."

The New Zealand dairy giant announced last week it would sell its Australian arm as part of a change to its international businesses.

Fonterra has 1600 employees and eight manufacturing sites in Victoria and Tasmania, including its flagship Cobden plant where it produces Western Star butter.

Mr Billing said he was surprised Fonterra, which has 17 per cent of Australia's processing capacity, was divesting its New Zealand brands.

"I am not that surprised about the Australian assets, because they have been talking about this now, for two or three years," he said.

The plans follow several years of uncertainty over the future of Fonterra's Australian arm, although in July, 2019, Mr Dedoncker told the annual Dairy Australia Situation and Outlook breakfast the company was "here for the long haul".

By October, that year, Mr Dedoncker said Fonterra was "rebuilding" to become a very profitable business that would one day restore farmer trust.

In September 2021, he revealed the co-op was officially reviewing Fonterra Australia's future.

"They may have a buyer already, for all we know, but I am not sure how they can secure all their milk contracts, if the business is going to be broken up?," Mr Billing said.

"If they don't have a buyer in the wings, already, I think it is pretty ambitious to be thinking it will be done in 12-18 months.

"But we don't know what's going to be done - they talked about full, or partial, divestment, so are they will going to have a footprint of some description in Australia?

He said DFV wanted to meet with Fonterra to clarify the potential impact for farmers.

"More clarity is needed, to give suppliers confidence," he said.

"Fonterra NZ has proven in the past they really don't consider the Australian dairy farmer that much - 2016 (the milk price clawback) is a really good example of that."

United Dairyfarmers of Victoria president Bernie Free, Winslow, said Fonterra had not yet provided enough information on its plans.

"They are talking of selling the brand and yet they bringing in product from New Zealand, to push the price down on the brand they already own - it doesn't make business sense, to me," Mr Free said.

It mattered who owned the processing plants, as the more diverse ownership was the better it was for competition.

"If Fonterra was going to divest, it would be good if it was broken up into smaller businesses, so Australian companies could buy it," he said.

Potential new ownership should also be scrutinised by the Australian Competition and Consumer Competition, he said.

It was likely a buyer would be found, as it did not appear to be a "fire sale," he said.

"The fundamentals tell me there should be competition for milk, in Australia, because there is not as much as what the processors say they need," he said.

But Gippsland Fonterra supplier Stu Griffin, Westbury, said farmers had been through talk about a potential sale, three years ago.

"We were Bonlac suppliers and Drouin and Moe co-ops before that, we have seen change happen," Mr Griffin said.

"We'd like to see business as usual a committment, from whoever buys it, to the milk supply as well as just the brands, especially things around supply support.

"Fonterra have got really good area managers who supply more than just an estimate, I would be keen to see that continue, and also support for our representative body, which we have had in place since Fonterra bought the business," he said.

"We have been long term suppliers of Fonterra and are happy with the relationship but we are not short of options as to where we send our milk."

"There is probably as much uncertainty in the world market as there is with the Fonterra business, so we are seeing changes in the Australian industry and we are going to continue to see changes."

He said when Fonterra bought Bonlac guarantees that suppliers would be retained were honoured -"those guarantees have been put in place before and been honoured."

Evan Campbell, Yannathan, is part of a family business milking 1000 head and said it appeared farmers were "in a bit of a holding pattern, with business as usual for the next 12 months".

"I can't see it really being an issue for this season, as more information comes out, I don't have a lot of concern, at the moment," he said.

"There is a lot of water to flow under the bridge until we know what is happening."

He said the bigger picture was more of interest, with rationalisation of processing factories in Victoria's north.

"If and when Fonterra's business is sold, or part of it is sold, or it got split up, it might not be the same operating environment, when that is said and done," he said.

"I am not worried about that for this season, but there might be implications for two-three-four years from now."

He said Fonterra was holding supplier meetings, attended by senior Australian managers, in the coming weeks.

"I don't think they are running away from it at all, they are going to be open about it," he said.