Fonterra

Background

The first dairy co-operative in New Zealand was established in Otago in 1871. By 1920, there were 600 dairy processing factories of which about 85% were owned by co-operatives. In the 1930s there were around 500 co-operatives but after World War II, improved transportation, processing technologies and energy systems led to a trend of consolidation, where the co-operatives merged and became larger and fewer in number. By the end of the 1990s, there were only four co-operatives nationwide: the Waikato-based New Zealand Dairy Group, the Taranaki-based Kiwi Co-operative Dairies, Westland Milk Products, and Tatua Co-operative Dairy Company.

Formation

Fonterra was formed in 2001 from the merger of the two largest co-operatives, New Zealand Dairy Group and Kiwi Co-operative Dairies, together with the New Zealand Dairy Board, which had been the marketing and export agent for all the co-operatives. Fonterra effectively has monopsony control of the New Zealand domestic and export dairy industry. The merger was initially turned down by the New Zealand Commerce Commission, but later approved by the New Zealand Government, with subsequent legislation deregulating the dairy industry, allowing for the export of dairy products to be undertaken by any company. The two smaller co-operatives, Tatua and Westland (which would later be acquired by Yili Group in 2019), did not join Fonterra, instead remaining independent.

The company has an annual revenue of around NZ$22 billion. Its core business consists of exporting dairy products under the NZMP brand (95% of its New Zealand production is exported). It also operates a fast-moving consumer goods business for dairy products, Fonterra Brands. Fonterra has a number of subsidiaries and joint-venture companies operating in markets around the world.

International expansion

In 2005, the company purchased a large factory in Dennington, Victoria, Australia, from Nestlé, after it moved out of the collection of milk from farmers and the manufacture of powdered milk in Australia. Also in 2005 the company made moves towards purchasing Australian companies Dairy Farmers and National Foods. It also converted its 50 per cent stake in Victoria dairy producer Bonlac to full ownership. At this time $1 billion of Fonterra's revenue was from Australian sales, which was 14 per cent of the dairy products it sells around the world.

In June 2008, the company acquired the yoghurt and dairy dessert business of Nestlé Australia, which it on-sold to Parmalat Australia in December 2015.

In 2010, leaked US embassy cables suggested New Zealand had only sent troops to Iraq in 2003, following the initial invasion, so Fonterra would keep valuable Oil for Food contracts. New Zealand was not a member of the coalition which supported invasion of the country, but later sent combat engineers for mine clearance and other such tasks.

In 2025, Lactalis agreed to buy the consumer unit of New Zealand’s Fonterra Co-operative Group for an amount of NZ$3.85 billion. This deal would include Fonterra’s consumer brands such as Anchor, Mainland, and Anlene in the Asia Pacific.

Asset sales and divestment

In 2019, the Tip Top ice cream brand was sold for NZ$380 million to Froneri, a global joint venture between Nestlé and PAI Partners.

Fonterra Research and Development Centre

In 1927 the New Zealand Dairy Research Institute (NZDRI) was founded in Palmerston North as part of the Department of Scientific Industrial Research, which was renamed to the Fonterra Research and Development Centre (FRDC) when Fonterra was formed in 2001. FRDC is purportedly one of the largest dairy research centres in the world, and as of 2019, it hosts several hundred engineers, scientists and researchers and holds 350 milk related patents. A large number of technologies involving whey, casein, lactoferrin, nisin, anhydrous milk fat, as well as cheesemaking and milk powder production have been developed at the centre.

FRDC has a substantial library of over 100,000 cheese starter cultures, which began in the 1930s under Hugh Whitehead. The centre has pioneered research on bacteriophages; in 1935 a bacteriophage was identified as the cause of failure in cheese starter isolates, and in 1992 the centre sequenced the genome of bacteriophage c2, which was the first whole genome to be sequenced in New Zealand.

Product issues

Sanlu milk scandal

In September 2008, one of the biggest dairy companies in China, the Shijiazhuang Sanlu Group, 43% owned by Fonterra, recalled more than 10,000 tonnes of infant formula after a food safety scandal involving the criminal contamination of its raw milk supply with melamine. Court papers showed the company first began receiving complaints of children becoming sick after drinking its milk in December 2007, but only stopped production when Fonterra blew the whistle in September 2008. After the initial focus on Sanlu, China's quality watchdog said that inspectors had also found the chemical melamine in baby formula produced by 22 companies nationwide. An estimated 300,000 Chinese babies were affected, and six died after developing kidney problems as a result of drinking formula containing melamine.

Fonterra first became aware of problems on 2 August 2008, when the Sanlu board, which had three Fonterra directors, was advised there was a problem with the contamination of infant formula. A trade recall began shortly after Fonterra was first notified. Prime Minister Helen Clark later said Fonterra had been lobbying for a public recall since 2 August, but that "local authorities in China would not do it. At a local level... I think the first inclination was to try and put a towel over it and deal with it without an official recall." Ms Clark said she first heard of the contamination on 5 September and three days later ordered that Beijing be told directly, bypassing local and provincial Chinese authorities.

Pollution prosecution

In September 2010, Bay of Plenty Regional Council made a statement that it had prosecuted Fonterra for allowing nitric acid and a caustic cleaning agent from its Edgecumbe milk processing plant to spill into a storm water drain and into a water course. Fonterra was fined $24,000. The Dominion Post and The New Zealand Herald reported the prosecution.

Fonterra is currently educating its sites on the best way to reduce pollution.

Legal issues

Court case of Fonterra vs Bega Cheese

Fonterra marketed and distributed the Bega Cheese brand, under an agreement established between the two companies in 1999. Fonterra later raised the issue of Bega otherwise using the Bega brand to market peanut butter. Bega themselves have since challenged this, accusing Fonterra of not living up to the agreement by not promoting the brand and therefore devaluing it. This case ended on 25 February 2021, when the Victoria Supreme Court dismissed all claims. Bega is allowed to continue to sell market peanut butter, but the court found Fonterra had no obligation to promote the brand as Bega claimed.

Greenpeace

In September 2024, Greenpeace announced they were suing Fonterra for breaching the Fair Trading Act. Greenpeace claimed that the Fonterra marketing of milk from "100% New Zealand grass-fed" cows was misleading when up to a fifth of an animal's diet might be imported palm kernel. Palm kernel is considered to be linked to deforestation, and New Zealand imports two million tonnes of it annually.

Smith v Fonterra Co-operative Group Ltd

In 2019, a lawsuit was filed against several companies, including Fonterra, on the basis that these companies were major greenhouse gas emitters contributing to climate change. Two of the three claims were initially dismissed by the High Court of New Zealand and the Court of Appeal, but eventually reinstated by the Supreme Court. Before the case went to trial, the New Zealand Government announced a law change which would prevent the case from going ahead. It was then revealed that the law change had been suggested in an initially undisclosed briefing document sent directly to the Prime Minister's chief policy adviser by Fonterra and Z Energy.