Fran O'Sullivan: Fonterra nicely set to see off tougher competition
NEW ZEALAND - Fonterra is exquisitely poised on the brink of a strategic shift that should enable it to stay ahead in an increasingly competitive market.
2 April 2007
2 minute read
Fonterra directors were in nationwide discussions with their dairy co-operative shareholders for much of last week regarding the direction in which they want to take New Zealand's largest company.
The much talked-about capital restructuring - which is expected to result in a full or partial listing on the NZX - is gaining considerable support from the co-op's dairy farmer shareholders.
Initially sold into the market late last year as a mechanism to reduce the risk of older shareholders leaving the co-op and causing a run on capital, the proposal has now developed a strategic colour.
Fonterra's export monopoly rents - the millions of dollars it extracts from its rights to NZ dairy quota in protected markets like the European Union - are now up for review.
New competitors, like meat processor Affco, which formed wholly-owned subsidiary Dairy Trust to get into the dairy processing industry, are muscling in on Fonterra's domestic turf. Affco will also list Dairy Trust on the NZX next year, providing sharemarket investors with direct exposure to NZ's biggest exporting industry and with a benchmark against which Fonterra shares will ultimately trade.
Other niche operators are also biting at Fonterra's heels, poised to drive their own exports further into international markets, as the giant co-op becomes bogged down in discussions over what happens to the legislated stranglehold it has enjoyed on NZ-denominated dairy quotas.
On top of the domestic issues, Fonterra faces downstream costs if the Government opts for a draconian approach to apportioning NZ's climate change risks.
