Fonterra expands stake in Russia
Dairy co-op takes up 49% of politically sensitive joint venture
Dairy giant Fonterra has taken steps to expand its Russian business, months after the new Government controversially committed to reopening free trade talks that’d been on ice since the Crimean crisis.
The deal — reported in Russian media in December but not by Fonterra in New Zealand — will see the co-operative take a 49 per cent stake in a St Petersburg-based joint venture with Foodline, its primary distributor in the Russian Federation.
Neither Fonterra nor the Ministry of Foreign Affairs was willing to talk about the deal, with both organisations instead responding to questions with brief written statements.
“We have kept the New Zealand Government informed of this investment,” a Fonterra spokesman said.
The Ministry of Foreign Affairs and Trade (Mfat) confirmed: “Fonterra advised Mfat of its intention to move ahead with a joint venture.”
The investment is a matter of some sensitivity. In late 2014 then-Prime Minister John Key said NZ stood with the European Union and others including the United States and Australia who had imposed sanctions on Russia after the annexation of Crimea and conflict in Ukraine.
Key then urged Kiwi firms to not opportunistically fill gaps left by retaliatory agricultural sanctions levied by Russia against the likes of the EU.
“There would be great opportun- ities for our companies, in particular dairy companies like Fonterra, to exploit that and they’re not doing that,” Key said.
The latest moves by Fonterra appear to signal if not a sea-change then at least a course correction in trade policy with Russia and follow NZ First’s successful lobbying during coalition negotiations to include making a free trade deal with a Russialed bloc a government priority.
The Herald reported late last year that the prospect of the new Government unilaterally freeing up trade with Russia had caused alarm at the EU, with their ambassador to New Zealand Bernard Savage saying efforts to progress the deal would be viewed “very negatively”.
A source familiar with NZ First leader, and now Foreign Minister, Winston Peters’ thinking on the issue said Russia was seen as a potential counterweight to the increasing dependence on China — particularly for dairy — as an export destination.
Both Fonterra and Mfat denied news of the deal was intentionally kept quiet. Fonterra said an NZX announcement was not needed because “the size of our investment in [joint venture] Unifood is not considered material”. The spokesperson declined to confirm the size of its stake.
The Herald understands Fonterra has committed about $30 million to the venture. Russian media reported the facility would initially process 4800 tonnes of butter a year, and 1200 tonnes of cheese, with capacity to quadruple this volume if required.
European agricultural media noted shortages in Russian milk production and speculated on how heavily Unifood would have to rely on repackaging imports from NZ.
An Mfat spokesperson said the trading situation with Russia was complicated by sanctions issued by both Russia and several countries concerned about aggression in Ukraine and Crimea.
“Because of the range of international sanctions against Russia, including recently extended sanctions from the US, we recommend exporters do careful due diligence.”
NZ’s dairy trade with Russia was disrupted by the tit-for-tat sanctions, falling from $114m in 2013 to $45m in 2015, but had recovered to pre-crisis levels and last year stood at $143m.
Russia represents only a tiny fraction of Fonterra’s $17b annual sales.
Foodline is run by Maskim Ivanov, who in 2014 co-signed a letter organised by British billionaire Richard Branson calling for leaders in Washington, Moscow and Kiev to peacefully resolve Ukraine/Crimea conflict.