30 Mar 2012

Fonterra says it needs to expand

5:59 am on 30 March 2012

Fonterra chief executive Theo Spierings says the cooperative must expand into emerging markets in order to retain its foothold as a dominant player in the global dairy market.

Mr Spierings estimates global demand for milk will grow by more than 100 billion litres by 2020, and says the company plans to use cash from established markets in New Zealand and Australia to expand in China, the Middle East and Latin America.

Demand from aspiring middle-class consumers is forecast to outstrip supply over the next eight years.

Mr Spiering declined to specify how much cash is needed to fund this growth strategy but said the business will be restructured during the next three months and he is also keen to talk mergers with companies already doing well in key countries.

"Europe and the US, 10 years ago were the most important markets for us," Mr Spierings said. "That is shifting ... so in Europe and the US we will actively look for smart and good partnerships with other good dairy players and possibly cooperatives to strengthen our position".

"Acquisitions in the field of what I call more basic nutrition - to strengthen our Anchor brand here and overseas - that could be possible," he said.

These alignments with other companies would not be in New Zealand and there would not be job losses in the trans-Tasman markets.

Expansion may risk brand

Waikato University agribusiness professor Jacqueline Rowarth says she expects Fonterra to make heavy use of partnerships with foreigners to fulfill its overseas expansion plans.

Though the nation's biggest company hasn't revealed how much it needs to fund its growth, billions of dollars is likely to be needed over the long term, and Professor Rowarth says there is a limit to how much of this can come from the cooperative's 10,000 farmers.

"Any sort of market push or development of an innovative product actually requires huge resources," she said.

"There's lot's of research on how you actually achieve market access through partnership," she said. "The problem is, who has control, and therefore control of the brand".

"It does worry me when we sell off our companies to overseas investors, that we can so very easily lose control of the supply-value chain and lose the brand," Prof Rowarth said. "Then we don't know what happens to it".