Fonterra plans to exit its consumer-facing business to focus on ingredients in what the dairy co-op described as a “step-change in strategic direction”.

The New Zealand-headquartered co-operative, owner of brands such as Anchor butter and De Winkel yogurts, said today (16 May) it is “exploring full or partial divestment options for some or all of its global consumer business”.

Publicly-listed Fonterra added that it will appoint advisors to assess disposal options, which also include the co-op’s “integrated businesses Fonterra Oceania and Fonterra Sri Lanka”.

CEO Miles Hurrell said the process is expected to take “at least” 12 to 18 months, should it proceed, amid “unsolicited interest in parts of these businesses”.

Hurrell added: “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.”

The consumer business also features the brands Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star and Perfect Italiano, among others.

Fonterra Oceania comprises the recently merged operations in New Zealand and Australia serving the retail, out-of-home and B2B channels. The Sri Lanka business also supplies those same customers.

Chairman Peter McBride explained: “We have conducted a strategic review, which has reinforced the role of our core business.

“This is working alongside farmers to collect a sustainable supply of milk and efficiently manufacture products valued by customers to deliver strong returns to farmer shareholders and unit holders.”

Fonterra said the consumer businesses considered for disposal used around 15% of the co-op’s milk solids and accounted for about 19% of group operating earnings in the first half of its 2024 fiscal year.

Interim first-half results issued in March, showed Fonterra’s group profit after tax rose 23% to NZ$674m ($411.4m), while EBIT was up 14% at NZ$986m.

In the year to 31 July 2023, profit after tax stood at NZ$1.6bn, up NZ$9954m from the previous 12 months.

Hurrell added: “While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfil Fonterra’s core function of collecting, processing and selling milk.

"Due to our co-operative structure, we believe prioritising our ingredients and foodservice channels and releasing capital in our consumer and associated businesses would generate more value.

“At the same time, we believe Fonterra is not the highest-value owner of the consumer and associated businesses in the longer term and a divestment could allow a new owner with the right expertise and resources to unlock their full potential.”

Fonterra has already trimmed parts of its global consumer operations over the past two years or so. In April, the co-op said it had agreed to sell its minority stake in Lithuanian dairy business Rokiškio Sūris amid a “strategic long-term review of investments”.

Late last year, Fonterra exited a dairy joint venture in Brazil with Nestlé in which the co-op owned a 51% stake - Dairy Partners Americas (DPA). It also sold operations in Chile last year, the Soprole business, and quit a venture in India in 2022, Fonterra Future Dairy.

“Through our work to date, Fonterra has strong foundations which puts us in the position to consider where we will next invest for long-term growth,” Hurrell said.

“We intend to provide a further update on our revised long-term strategy in due course. This will include further detail on our plans to grow the long-term value of Fonterra and the measures through which we will track our progress.”