21 September 2001

Kiwi milk giant cool on Europe

By Andrew Shirley

BRITISH dairy farmers have nothing to fear from the formation of giant New Zealand milk co-operative Fonterra, claims the newly appointed chief executive Craig Norgate.

"We want to keep the focus tight. Most of the concentration will be in Asia and Latin America where the returns on capital are much greater."

Fonterra was created three months ago as GlobalCo (Business, July 6) after the merger between the NZ Dairy Board and the countrys two largest co-ops, Kiwi Dairies and NZ Dairy Group, which between them represented 96% of the countrys 13,700 milk producers.

It is already the worlds largest dairy exporter and has a turnover of US$5bn (£3.4bn), putting it ninth in the worlds dairy company rankings. It has also struck an agency deal with DairyAmerica, the biggest skimmed milk powder producer in the US, and is in discussions over joint ventures with Nestlés interests in the Americas.

Mr Norgate, however, did not rule out some form of European merger in the future. "A foot in the door would be good, but not if it involves a large amount of capital expenditure." A recent bid to start a joint venture with Humana, Germanys second largest dairy group, failed.

The new business will be 100% farmer-owned, but will have a capital structure that Mr Norgate considers unique among co-ops. As well as payment for their milk, farmers will receive a monthly dividend based on the number of shares they hold.

Producers wishing to expand will be able to buy more shares valued at the market rate and those leaving the industry will benefit from any increase in value.

Kiwi farmers should start to feel the benefits soon, says Mr Norgate. "There is likely to be an increase in payments within this financial year." He estimates an average increase of 4% to NZ$5.20/kg milk solids (about 11p/litre) should filter though over the next 12 months.

But he adds the ability to plan long term is required to facilitate such a move, something he believes is lacking in the current UK system. "This merger is the result of generations of planning by NZ farmers." &#42