NZ dairy giant Fonterra takes Australian business off the market after profit increase

New Zealand dairy processor Fonterra has backed away from potentially selling its Australian business after reporting a year of increased revenue and profit.

The company, which produced brands like Western Star Butter and Perfect Italiano Cheese, said in September last year that it was conducting a ‘review of different options’ for the Australian business.

But in announcing the company’s 2021-22 financial year performance, chief executive Miles Hurrell said Fonterra had decided it was “in the co-op’s best interests to maintain full ownership”.

The decision ends a year of speculation about the possible change in ownership of one of Australia’s largest milk processors.

“The last 12 months we took the opportunity with partners like investment banks and others to make sure that the decision we made was the right one,” Fonterra Australia managing director Rene Dedoncker said.

New Zealand dairy giant Fonterra increased its revenue during the COVID-19 pandemic.(ABC Rural: Jessica Hayes)

It also comes after Fonterra’s major competitor in Australia, Canadian company Saputo, told markets that it was reviewing the size of its operations in Australia and that some factories might close.

“[Australian] milk production has been declining year on year, which means that there is less milk for us to process, which means we need less plants in our system,” Saputo president Lino Saputo Junior told a conference in Canada.

Profits to continue increasing

Fonterra has been able to maintain its milk supply from Australian farmers despite the tightening market.

The company has collected about 106 million kilograms of milk solids annually for the past two years but revenue and profit have been increasing.

Gross profit for the Australian business was up 16 percent to $NZ283 million and normalized earnings before interest and taxes up 43 percent to $NZ106 million for the 2022 financial year.

A shipping container with a Western Star logo on its side
Fonterra produces brands like Western Star Butter and Perfect Italiano Cheese.(ABC Rural: Jane McNaughton)

The outlook for the year ahead also remained strong even as the company paid record milk prices.

Mr Dedoncker said that despite paying Australian dairy farmers 25 per cent more, Fonterra Australia would still make a profit.

“We’re very confident about the year ahead,” he said.

“I’m not in a position to throw a number at you but I can tell you that we will be making money this year.”

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