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Farmers cautiously optimistic

Farmers cautiously optimistic

Local dairy farmers are cautiously optimistic as Fonterra has announces a surprise U-turn with plans to explore the sale of its global consumer business, including brands such as Anchor and Mainland.

The dairy giant's chairman Peter McBride said the decision to focus on its core business came after a strategic review and would set Fonterra up to grow long-term value for farmer shareholders and unit holders.

Divestment is expected to take between a year and 18 months and would require shareholder support for any sales go ahead.

Hinds dairy farmer Evan Chisnall said the principle behind the decision was for Fonterra to focus on its core business to make the co-operative more competitive and profitable - but farmers would need more detail to understand the full implications.

"Fonterra used to try and have lots of brands with a foot in lots of camps internationally. But being more New Zealand-centric seems to be more profitable and easier to manage."

Chisnall said he would be interested to see the details, which he expected would be available in a few weeks, but said it appeared a case of moving away from brands that were not Fonterra's core businesses to create a better business model and improve the performance of the co-op.

The farmer-owned co-operative is considering full or partial divestment options for some or all of its global consumer business, as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka.

The portfolio includes market leading brands such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano and others.

Those brands used about 15%of the co-op's total milk solids and generated about 19% of its profit in the first half of this financial year.

Fonterra chief executive Miles Hurrell said Fonterra would likely continue supplying milk to the consumer brands through its ingredients business and the co-op could increase its value to farmers as a business-to-business dairy nutrition provider.

"We believe we can grow further value for the co-op by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing ingredients and foodservice channels.

"This will be enabled by strong relationships with farmers, a flexible manufacturing and supply chain footprint, deeper partnerships with strategic ingredients customers, further investment in our Foodservice channel, continued delivery on our sustainability commitments and investment in innovation."

Hurrell said prioritising the ingredients and foodservice channels and releasing capital in the consumer and associated businesses would generate more value for farmer shareholders.

He also believed that divestment could allow a new owner with the right expertise and resources to unlock their full potential for the leading brands.

By Sharon Davis