Nestle and Fonterra scale down Latam partnership
Nestle is buying back milk powder factories in Latin America, significantly scaling down a joint ven…Nestle is buying back milk powder factories in Latin America, significantly scaling down a joint venture with Fonterra , the New Zealand dairy group whose reputation was damaged by a food safety scare last year.
Nestle, the world's biggest food group, and Fonterra, the world's biggest dairy group, set up their venture in 2003 to develop, produce and sell a range of dairy products in Latin America, where economic growth has fueled growing demand.
Nestle said on Tuesday the venture had performed well but the time was right "to realign the partnership to better reflect the respective strategies of Nestlé and Fonterra in the region".
Nestle spokesman Chris Hogg said in an email the move had nothing to do with the food safety issues Fonterra had to deal with in the recent past.
"Most of the products made in these factories are supplied to Nestle, so it makes sense that they return to the company," Hogg added, noting that having greater control would boost the company's ability to respond to changes in the market.
Fonterra said last August it had found a botulism-causing bacteria in a range of products, prompting a recall of products including baby formula in markets including China and Saudi Arabia. It was a false alarm, but the episode led to lost contracts for Fonterra and dented New Zealand dairy exports.
Fonterra was fined NZ$300,000 last month for the way it handled the safety scare.
Under the new arrangement, Nestle will again own and operate milk powder factories in Brazil, Argentina, Ecuador and Colombia which had been run by the joint venture. Fonterra expects to get about NZ$96 million ($82.1 million) in the next financial year to reflect the value of the assets it is giving up.
Nestle will also buy Fonterra's share in a liquid dairy business in Ecuador, while a chilled and liquid dairy business in Venezuela will go back to Fonterra, which will operate it with a local partner.
The joint venture will remain in place in Brazil for the commercialization of chilled dairy, with Fonterra taking a 51 percent stake and Nestle 49 percent, Nestle said.
"We value our relationship with Nestle and this high-quality agreement will see our successful alliance continue," Fonterra Chief Executive Theo Spierings said in a statement, noting the company's key growth markets were Latin America, China and Indonesia.
