Fonterra exits Dairy Farmers of America joint venture, retains supply deal

Thursday 19th November 2015

Fonterra Cooperative Group, the world's biggest dairy exporter, plans to sell its stake in the DairiConcepts ingredients joint venture with Dairy Farmers of America for some $196 million, after deciding it didn't fit the company's strategy.

The Auckland based cooperative will sell its 50 percent stake in DairiConcepts to partner DFA on Dec. 31, ending a 15 year venture where Fonterra contributed key ingredients to the US dairy and cheese flavours business, while the American cooperative supplied a number of cheese and cheese-powder assets, it said in a statement. Fonterra signed a long-term supply agreement as part of the sale.

"We still value our relationship with DFA, however as the DairiConcepts business is almost completely stand-alone operationally, we have agreed that it would be simpler for one of the partners to buy the other out," chief executive Theo Spierings said. "The US remains a key part of our global multi-hub strategy and this divestment does not prevent Fonterra from exploring new growth opportunities for this milk pool."

The exit comes as Fonterra pursues closer ties with Chinese partner Beingmate to help meet China's growing demand for infant formula, and will draw on the New Zealand company's global supply chain.

At the same time, it follows the completion of the Trans-Pacific Partnership trade and investment agreement negotiations, which failed to deliver any material gains for New Zealand's dairy sector in securing greater access into the closely protected North American and Japanese markets.

In a separate statement. DFA said it viewed DairiConcepts as playing a key role in growing its ingredients business and extending its global reach. DairiConcepts will operate as a wholly-owned subsidiary of DFA after the purchase is completed, manufacturing cheese, dairy ingredients and dairy flavour systems across eight sites in the US.

Units in the Fonterra Shareholders Fund fell 0.6 percent to $5.45, and have dropped 8 percent this year.

BusinessDesk.co.nz

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