'No business without milk': Fonterra moves to allay divestment concerns

The New Zealand company has 1600 employees and eight manufacturing sites in Victoria and Tasmania, including its flagship Cobden, Vic, plant where it produces star performer Western Star butter.

The move to sell off brands, announced in May 2024, is seen as a focus on Fonterra's core business of milk and cheese supply.

Fonterra representatives met with hundreds of Cobden farmers and factory staff on June 5 before a breakfast at Warrnambool's Pavilion Cafe the following day.

Fonterra Oceania managing director René Dedoncker said on June 6 the divestment announcement came from a good place with the board thinking deeply about the next 20 years.

"The consideration that has gone in to this has been extensive. It's been a calm process and the execution of it will be equally calm and considered," he said.

He said the process would not be rushed with a potentially two-to-three-year journey before them.

"If we can announce we're getting close to a trade sale in 12 to 18 months, that will be a pretty fast process for a deal of this size," he said.

"Then it will take another six to 12 months to execute."

Mr Dedoncker said Fonterra's consumer businesses had just experienced a record year and there were questions about "one of most profitable parts" being up for potential investment.

But he said that was part of the company's long-term vision to focus on functional ingredients and "protein to the world".

"They have made a courageous call. They have taken a long-term view and have got out early at a time when we are going to see some great results," he said.

"The job now is to start thinking about what that process will look like."

Mr Dedoncker said there would be a strong commitment to farmers and the local south-west Victorian community going forward and that if a divestment went ahead, Fonterra planned to include all existing milk supply contracts in place at the time of sale.

He said job security was not an issue with any potential new owner needing milk supply.

"This business does not exist if we do not have milk," he said.

Mr Dedoncker said that if done well, the process would be great for the Australian dairy industry.

He said he and his team would play a critical role in representing the business during "the entire transaction process".

"This hasn't been rushed, it has taken a good year to get to this point and we will now be very considered in how we execute it," he said.

Fonterra Australia Suppliers' Council chair Paul Weller, who runs a farm in Northern Victoria, said when Mr Dedoncker first told him about the divestment he knew it would be met with "some nervousness".

"But when you think about it, if somebody is going to pay the money that Fonterra will want for the business, they're going to want milk," he said.

"And they're going to want to continue the good relationship with us farmers, so I think it is a positive thing."

Thursday's breakfast came just days after Fonterra released its opening milk price of $8.00/kgMS for the 2024/25 season.

Fonterra farm source director Matt Watt said it was a minimum price that was in line with industry expectations.

"What we have been saying to our farmers in the last week was 'this is where we see the market at the moment'," he said.

"But as we see the market tick up, which we are hopeful it will, (farmers) have our commitment that we will pass it on."