Fonterra’s China woes a ‘concern for NZ’
Andrea Fox
andrea.fox@nzherald.co.nz Every New Zealander should be concerned about Fonterra’s problems with its China investments, says Agriculture Minister Damien O’Connor, amid speculation that his early call for a review of the dairy industry could be significant for the big co-operative.
Asked to provide the Government’s view on Fonterra’s fastdeteriorating $756 million investment in China’s Beingmate infant and child food company, O’Connor told the Business Herald it was a matter for the farmer-owned company and its shareholders, “but our reputation, of course, as a country is linked directly to Fonterra and its actions”.
He said: “Every New Zealander should be concerned our single biggest company is struggling with a couple investments.”
Fonterra, which has dividendcarrying, non-voting units on the sharemarket, bought an 18.8 per cent stake in the Chinese retailer in 2015. Fonterra has also invested about $800m in establishing farms in China.
By last September, Beingmate’s continuing poor performance saw the investment value cut to $615m on Fonterra’s books compared to market value just under $400m.
Last month, Beingmate said its expected loss would be far bigger than forecast — $171m to $214m for the December year against a previous forecast loss of $75m to $107m.
Meanwhile, Fonterra’s capital investment of close to $800m in farms in China yielded just $1m in earnings before interest and tax in the 2017 financial year. This despite a $38m subsidisation of the of its offshore farms’ operations by the ingredients division.
Fonterra said it was disappointed at the Beingmate loss downgrade. Chairman John Wilson has been reported as being confident the Beingmate business could be turned around “over the medium term”.
Nearly three years after its investment, Fonterra revealed four Beingmate directors, including two it appointed, had concerns about some aspects of Beingmate’s financial management and reporting practices. Beingmate sells Fonterra’s Anmum product in China through a joint venture.
A new review under the provisions of the Dairy Industry Restructuring Act (DIRA), which in 2001 enabled the formation of Fonterra from a big industry merger and deregulated dairy exporting, is not due until 2020-2021.
Industry leaders in 2001 said the merger would create a national export champion. The merger of the two biggest dairy manufacturers and the exporter Dairy Board gave the new company, Fonterra, 96 per cent of New Zealand’s raw-milk supply. After 17 years that dominance has eased with export rivals emerging, but is still 82 per cent.
O’Connor said the Ministry for Primary Industries-led review would look at “a large number of issues”.
Fonterra’s investment of more than $850m in a new plant in the past four years, when New Zealand has flatlining milk-production growth, is expected to inspire questions. Fonterra was approached for comment on the review but did not respond. DairyNZ was also asked for comment.