Latest / Best of Business / Miles Hurrell: Fonterra Chief Executive confident farmers will support $3.8billion brand sales

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Miles Hurrell: Fonterra Chief Executive confident farmers will support $3.8billion brand sales · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks'd be follow
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  Speaker 2: Fontira has agreed to one off, if not the biggest
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  Speaker 2: sale in the country's history. French food group Lacdalise has
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  Speaker 2: agreed to pay three point eight four five billion dollars
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  Speaker 2: for the consumer business, including brands like Anchor and Mainland
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  Speaker 2: Fonterira's share prices shot up nearly twenty percent today. Chief
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  Speaker 2: executive is Miles Harrel High Miles afternoon. That so when
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  Speaker 2: did you guys wrap up the deal?
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  Speaker 3: Very early hours this morning. It's been a long, long
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  Speaker 3: couple of days for the team. But you're great, great
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  Speaker 3: to put pen to paper earlier hours this morning.
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  Speaker 2: Here, yeah, wire you pleased to hear it when you
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  Speaker 2: when you heard the final.
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  Speaker 3: Number, Yes, we were. I mean we've been, as I say,
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  Speaker 3: working some long days to get to this point. There's
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  Speaker 3: always a lot of detail behind the number itself. But
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  Speaker 3: now really please and of course please to go to
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  Speaker 3: a company like lack to Lease that have a strong presence,
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  Speaker 3: global presence that we can work collectively with.
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  Speaker 2: Do you reckon the farmers are going to sign off
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  Speaker 2: on it?
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  Speaker 3: Well? I mean, ultimately it's their call, but I think,
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  Speaker 3: you know, it's a number that you know, above the expectations,
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  Speaker 3: as you say, and the fact that we've already announced
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  Speaker 3: that we'll go out with a two dollars capital return
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  Speaker 3: to our farmers. I think those things will will help.
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  Speaker 3: I mean, there's a lot, a lot of emotional connections
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  Speaker 3: to these brands, not just used it in public, but
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  Speaker 3: our farmers as well. So you know, they'll ask those
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  Speaker 3: questions and we'll be out talking to them. But at
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  Speaker 3: this point, the feedback I've had for farmers has all
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  Speaker 3: been positive.
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  Speaker 2: It's been estimated that the average dairy farmer in the
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  Speaker 2: white cutle we get about four hundred thousand dollars from it.
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  Speaker 2: Is that about right?
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  Speaker 3: Yeah, that's about right. You know, it depends on the
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  Speaker 3: farmers that are significantly bigger than that, of course, and
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  Speaker 3: others on the other side, but yeah, that's about an
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  Speaker 3: average farmer.
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  Speaker 2: I think, yeah, Trush, well I would say yes to that,
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  Speaker 2: wouldn't you.
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  Speaker 3: Well, yeah, of course, but it's a capital return, so
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  Speaker 3: it's not like it's falling from the sky. This is
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  Speaker 3: capital I've had invested in the cop for a number
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  Speaker 3: of years and so they're the questions that they ask.
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  Speaker 3: But you know, it comes back to, you know, what
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  Speaker 3: we've decided as a corporative that we're going to go after.
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  Speaker 3: It's that ingredients business, that's food service, and we believe
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  Speaker 3: that's where the returns are not just for now, but
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  Speaker 3: into the long term, and so I think they'll support that.
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  Speaker 2: Part of the deal is a long term agreement for
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  Speaker 2: Fonterra to sell milk and ingredients to these guys. How
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  Speaker 2: long is that.
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  Speaker 3: For will they vary depending on sort of what products
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  Speaker 3: we're talking about, But you know we've talked about the
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  Speaker 3: fresh milk agreement, which you know goes into sort of
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  Speaker 3: the anchor two leaders as will all know, there's a
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  Speaker 3: ten year agreement behind that, so you know they're here
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  Speaker 3: for the long term and our farmers should be pleased
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  Speaker 3: with that, as should the New Zealand public.
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  Speaker 2: Part of the criticism of this is that you're backing
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  Speaker 2: away from value added products, which we have for the
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  Speaker 2: longest time being told is the key to New Zealand's
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  Speaker 2: economic future. What's your response to that criticism.
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  Speaker 3: We have three key channels, you know, the food service
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  Speaker 3: that out of home consumption that you buy in a
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  Speaker 3: restaurant or a bakery, and the ingredients business and the
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  Speaker 3: consumer which you buy in the supermarket, those three channels.
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  Speaker 3: For since the cooperative's formation in two thousand and one,
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  Speaker 3: that has been the lowest performing channel for a long time.
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  Speaker 3: And so you know, there will be a variety of reasons.
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  Speaker 3: That is an expensive business to maintain, you go to
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  Speaker 3: continue to invest in it, and so probably some reasons
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  Speaker 3: behind it. But we've shown for a long time that
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  Speaker 3: our core business of collection, process and ingredients and that
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  Speaker 3: food service business, you know, it returns above the cost
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  Speaker 3: of capital for our farmer owners and that's for therefore
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  Speaker 3: that too will put out our investment going forward.
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  Speaker 2: So now that you're getting rid of this particular part
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  Speaker 2: of the business, where do you focus your energy more intently?
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  Speaker 3: Yeah, so it's that advanced ingredients, you know, and you've
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  Speaker 3: got you know that the developed economies of North America,
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  Speaker 3: Europe which are a Japan career, which are spinning more
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  Speaker 3: on health and wellness, and that's right in our wheelhouse.
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  Speaker 3: So that's where we'll go. And of course you know
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  Speaker 3: China and Asia Pacific around that out of home consumption,
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  Speaker 3: so you know, bakeries, restaurant chains, fast food is a
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  Speaker 3: huge market still to be tapped in that rule.
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  Speaker 2: Well, isn't the argument here, Miles, actually that the advanced
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  Speaker 2: ingredients is actually value added. Chopping up a block of
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  Speaker 2: butter and sticking a wrapper on it is not really
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  Speaker 2: value added.
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  Speaker 3: Well, that's that's sort of the argument. There's not a
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  Speaker 3: lot of science that goes into into a block of butter.
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  Speaker 3: That's the you know, we pray ourselves in the way
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  Speaker 3: we farm and the taste profile and the functionality, but
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  Speaker 3: you know that the ip that sits in behind you know,
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  Speaker 3: a sports strength for for athletes or not even athletes
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  Speaker 3: these days, but you know that the Joe public that's
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  Speaker 3: out there going for a run or a bike ride.
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  Speaker 3: I mean the science that goes into some of those proteins.
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  Speaker 3: That that's where we believe our future is. And as
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  Speaker 3: I say, that's where the value is for us now
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  Speaker 3: and into the future.
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  Speaker 2: So is it too early to crack a bottle of champagne.
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  Speaker 3: Yeah, I've got a few more media calls to do
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  Speaker 3: for the rest of the evening, and farmer calls are
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  Speaker 3: in fat lad into the night, So too early for that,
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  Speaker 3: But we'll see what the weekend holds.
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  Speaker 2: Good for you, Miles, enjoy it. Myles Hurrell, chief executive
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  Speaker 2: at Fonterra.
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