Fonterra CEO caught up in Chilean probe
Fonterra chief executive Miles Hurrell has been asked to hand over his computer files by a Chilean prosecutor, amid an investigation into Fonterra’s businesses in that country. The probe was sparked by a complaint from a shareholder of Fonterra subsidiary Prolesur, against Fonterra’s appointed directors on the Prolesur board.
The directors include Fonterra employees Robert Spurway and Paul Campbell.
Hurrell was chairman of Prolesur last year. He was not named in the complaint but Fonterra said his files were among those sought by the prosecutor’s office.
In response to Herald inquiries, Fonterra said the complaint related to a commercial disagreement between Fonterra-appointed directors and a minority Prolesur shareholder, the Isabel Aninat charity foundation.
The disagreement concerned the terms of sale for cheese between Proselur and Fonterra’s other Chilean subsidiary, Soprole, New Zealand’s biggest company said in a statement.
The investigation was at a “preliminary”
and “informal” stage, it said.
“No charges have yet been brought against the Fonterra-appointed directors. We fully support our appointed directors. If any charges are brought by the Chilean prosecutor after investigating the claims, the directors will vigorously defend them.”
Media reports in Chile claim that seven Soprole executives have refused to turn over their computers to the high-complexity crimes unit of the prosecutor’s office.
Fonterra said: “Soprole employees are co-operating with the prosecutor as part of this preliminary investigation, including discussions with the prosecutor to identify which information and records are relevant to the complaint.”
Chilean media reports say the complaint is against five directors of Prolesur, one of whom is chairman Gerardo Varela, a former Minister of Education.
The reports also claim Fonterra could be considering selling its South American assets for $1 billion.
Fonterra last year posted a historic loss of $196 million and had debt of $6.2 billion.
The company is reviewing all its assets as part of a wider strategic refresh as it seeks to
If any charges are brought by the Chilean prosecutor after investigating the claims, the directors will vigorously defend them. Fonterra statement
reduce debt by $800m this financial year.
No asset sale decisions have yet been announced.
Chile’s commercial prosecution unit has been approached for comment.
Prolesur, based in southern Chile, is a Fonterra ingredients business.
Soprole, a consumer product-business headquartered in the north, says it sources about 30 per cent of its daily fresh milk from Prolesur, which is a major cheese exporter.
News of the prosecutor’s investigation follows reports of increasing ill-feeling against Fonterra among Chilean milk suppliers.
Late last year, Mike McBeath, the New Zealand chairman of Chile’s second-biggest dairying operator, the part-Kiwi owned Chilterra company, told the Herald Fonterra’s continuing underpayment for milk had left dairy farmers little choice but to try to build their own processing cooperative.
Chilterra’s nine farms supply Prolesur. McBeath alleged Fonterra was “taking advantage and massive profits” in Chile.
He said Fonterra set its milk price at the export level, which was lower than milk fetched on the domestic market — but it sold products to the domestic market.
At the time, Fonterra responded that Chile was a net importer of dairy products and in addition to domestic factors, global import/export prices could influence local prices.
New Zealand farmers are part of the dairying landscape in Chile, either farming there or through equity investment in farms.
One Kiwi, who spoke on condition of anonymity, said: “They [Fonterra] really don’t do themselves any favours. The populist politicos love it, it gives them plenty of fodder to rally against foreign corporates coming here and taking the mickey out of local laws.”
Soprole is Fonterra’s oldest offshore investment. Fonterra and its legacy entities have controlled the company for 20 years but New Zealand’s connection with the consumer-goods producer goes back to 1986 when the then-New Zealand Dairy Board acquired more than 50 per cent of Soprole’s shares.
Soprole was founded in 1948, initially as a milk, cheese and butter producer.
One of its founders was Juan Luis Aninat, who in 1986 established the charity foundation which has sparked the current investigation with its complaint. Today Fonterra owns 99 per cent of Soprole.
Prolesur was established in 1990 when Soprole was restructured.
Fonterra controls Prolesur through Soprole, which owns 70 per cent of Prolesur.
The Chilean dairy market is controlled by Soprole, Nestle, Loncoleche and Colun, a fast-growing farmer co-operative.
Fonterra’s 2018 annual report said its Latin American business, which included Brazil, increased earnings before interest and tax by 29 per cent from $91m in 2017 to $117m.
This was driven by the “solid performance” of Soprole in mature cheese and yoghurt sales, it said.
Brazil had turned around its performance, going from a loss position to breaking even.
Milk volumes handled by Soprole were 7 per cent up at 31 million standard litres last year.
According to Fonterra’s website, Soprole is the best-known corporate brand in Chile outside Coca-Cola. The company supplies 33,000 ingredients and foodservice customers.