Fonterra ups stake in Chilean dairy processor Prolesur

The NZ co-operative has taken its stake to 99.9% and has offered to buy the remaining 0.1 percent, with the Chilean business recently impacted by ‘challenging market conditions’.

New Zealand dairy co-operative Fonterra has upped its stake in Chilean dairy processor Prolesur, as it looks to “streamline its operations.”

The firm announced to shareholders on December 19 that it had acquired a 13.6 percent stake for NZ$29.3 million ($19.3 million; €17.4 million) from Fundación Isabel Aninat, a Chilean charitable foundation established by farmer and businessman Juan Luis Undurraga Aninat.

The deal takes Fonterra’s shareholding in Prolesur to 99.9 percent. It has offered to buy the remaining 0.1 percent from minority shareholders at the same price as that paid for the shares from Fundación Isabel Aninat.

Prolesur is a milk processor in southern Chile that sells most of its products to Soprole, a consumer-branded dairy company in the country that is also 99.9 percent-owned by Fonterra. Soprole is Fonterra’s oldest offshore investment.

Kelvin Wickham, Fonterra’s CEO for Africa, Middle East, Europe, North Asia and the Americas, said the deal would help simplify the relationship between Prolesur and Soprole and further integrate the two businesses.

“Prolesur and Soprole are both strong businesses but their recent performance has been impacted by challenging market conditions,” Wickham said in a statement.

“Having the two more closely integrated will generate operating efficiencies across the supply chain from milk collection, to processing and administration. It also allows us greater flexibility as we focus on realising the best value for the co-op from our businesses in Chile in line with our new strategy.”

Fonterra has been in the process of simplifying its overseas operations for the past 18 months. In its 2018-19 annual report it announced that its normalized EBIT had declined by 8 percent to NZ$811 million in the year to July 31, due to ongoing challenges in its offshore businesses in Australia and Chile.

Of its Chile businesses, it said: “Prolesur’s milk collections were down 16 percent due to strong competition for farmers’ milk. The increased cost of milk and reduced collections resulted in Prolesur not making a profit. Prolesur was the main reason [the ingredients division’s] ‘other gross margin’ was down 13 percent to NZ$85 million.”

Fonterra this month announced that it had increased the midpoint of its forecast farmgate milk price by 25 cents to NZ$7.30 per kilogram of milk solids because of “a global dairy market that is tipped slightly in favour of demand.”