Dairy giant sells off its Brazilian business: is a Xmas present likely to come the way of farmers?

Dairy giant Fonterra has clinched the disposal of the last of its major South American investments. It has, with Nestlé, agreed the sale of their Dairy Partners Americas (DPA) Brazil joint venture to French dairy company Lactalis for BRL 700m (about NZD $210m subject to closing transaction adjustments).

The deal is expected to be completed by mid-2023, subject to regulatory authority approvals.

Fonterra CEO Miles Hurrell says the sale of DPA Brazil is aligned with the co-op’s strategy of prioritising its NZ milk pool.

“DPA Brazil has reached maturity as an investment for us, and the sale allows us to prioritise our resources to the businesses that are core to our strategy.”

Hurrell said that Fonterra was pleased to have secured the sale, which had been delayed due to market conditions related to COVID-19. DPA Brazil has been held for sale in Fonterra’s financial statements since January 2020.

Fonterra and Nestlé created DPA in 2003 to manufacture and commercialise dairy products throughout Latin America. In 2014, the joint venture refocused its activities on Brazil and chilled dairy.

Fonterra holds a 51% stake and Nestlé 49%. DPA operates two plants and employs 1,300 people. Nestlé, Chamyto, Ninho, Chandelle, Chambinho, Neston and Molico are among the well-known brands marketed by DPA in Brazil.

The sale is subject to receipt of regulatory approvals from competition authorities. Fonterra’s previously announced FY23 earnings guidance will continue to reflect the underlying performance of the DPA Brazil business during the pre-completion period.

Fonterra will provide an update on the overall impact of its divestment programme as part of its FY23 financial reporting. Last month Fonterra anounced the sale of its Soprole business in Chile for $1.055bn.

It had indicated  in April it would divest the company in order to focus on NZ milk. Soprole was a very good business but did not rely on NZ milk or expertise, he said.

“We are now at the end of the divestment process ”.

Farmer-shareholders  may be looking for a  Xmas present  in  the form of a capital return — or  at  least  some indication  it will be  coming  their way in 2023.