Fonterra has announced plans to close its Dennington site in Australia and is considering selling its stake in the Dairy Partners Americas (DPA) Brazil joint venture it holds with Nestlé.
The New Zealand dairy cooperative is also commencing a strategic review of its two wholly-owned farm-hubs in China. The moves form part of the firm’s strategy to prioritise its New Zealand milk supply and simplify its global portfolio.
For the full year ended July 2018, Fonterra reported a net loss of NZD 196 million – its first annual loss since its inception in 2001.
The poor results prompted the company to carry out a major financial review. It has since sold its Tip Top ice cream business and Farm Source livestock division and reached an agreement with Chinese infant formula firm Beingmate to unwind their joint venture in Darnum, Australia.
Commenting on the strategic review of its China farms, Fonterra CEO Miles Hurrell said China remains a key market for the company.
“We have contributed to China’s dairy industry by developing high-quality model farms and showing there is a valuable opportunity for fresh milk in China’s consumer market, and this continues to be an attractive prospect. However, this does not necessarily mean that we need to continue to have large amounts of capital tied up in farming hubs.
“On DPA Brazil, which is a joint venture distributing chilled dairy products throughout Brazil, the review into future ownership options and whether to sell is expected to be completed by the end of 2019.
“Yesterday, we also started talking to the team at our Dennington factory in Australia about the tough call we’re making to close the site. The Australian ingredients business continues to feel the impact of the drought and other significant changes that mean there is excess manufacturing capacity in the Australian dairy industry.
“This is not a one-off for this season, it’s the new norm for the Australian dairy industry and we need to adapt. We need to get the most value from every drop of our farmers’ milk and, with the reduced milk pool in Australia, we must put it into our highest returning products and most efficient assets. Dennington is over 100 years old and not viable in a low-milk pool environment. We have 98 employees at Dennington and this decision will be incredibly hard for them. Our top priority is to support our people.”
The updates come as Fonterra posted its third-quarter results, with revenue for the nine months to 30 April 2019 at NZD 15 billion ($9.74 billion), up 1% on the prior year period. However, normalised EBIT was down 9% to NZD 522 million ($338.9 million).
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