Things are looking up for New Zealand’s Fonterra’s Chile investment

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Fonterra’s Prolesur is leading the charge in the dramatic recovery in Chilean milk production as the company reaps the benefits of rebuilding relationships with farmers.

The Latin American nation’s liquid milk collection reached 1.3 billion litres in the first eight months of the year, up 6.3 percent from a year earlier, or 79 million litres. More than half of that increase went to Prolesur. This compares to the 12.8 billion litre collection in New Zealand in the first eight months of the year. 

“Prolesur has been working over the last 18 months to regain milk volumes that it lost in 2018/19. This has been achieved through working closely with farmers to regain trust and competitive pricing,” Erich Becker, Prolesur managing director told BusinessDesk.

42 percent lift

Prolesur collected 147 million litres versus 103.5 million litres in the eight months through August 2019, a whopping 42 percent lift. Fonterra’s other Chilean business, Soprole, also posted an increase, collecting 124 million litres versus 120 million in the prior year.

Fonterra owns the Prolesur milk processing business and Soprole, a local consumer business. Combined they collect about 20 percent of Chile’s milk.

Chile has seen a “dramatic recovery in milk production this year with cumulative milk production running close to 6 percent above 2019. Most of the growth can be credited to improved weather, particularly in the southern region of the country, which has seen output rebound dramatically,” said Monica Ganley, principal for Quarterra Consulting & Advisory in Buenos Aires.

Turnaround

The lift is good news for Fonterra’s investment in Chile, which has come under scrutiny in recent years as the dairy giant places a greater emphasis on its NZ business.

In calendar 2019, Soprole reported a 30 percent drop in annual profit as it faced a ‘buy Chilean campaign’ and nationwide protests.

Prolesur, meanwhile, reported a loss amid a slide in milk supply, prompting local suppliers to point out how critical it was for Fonterra to get farmers on board.

Quarterra’s Ganley expects strong volumes in coming months.

Milk prices remain strong, despite a slight relaxation in August, with healthy margins motivating producers to expand, she said.

Ganley noted, however, weather is the greatest risk factor and said – given much of the continent has been dry – it will be critical the grass gets some precipitation soon to continue growing.

According to Becker, Prolesur has the capacity to process the increased volumes.

The improving panorama bodes well for Fonterra hanging onto the business.

Chief executive Miles Hurrell recently said it’s a standalone business and “not part of our NZ milk strategy to the world.”

The cooperative is still feeling “okay with our Chilean business” but “we need to see some performance improvements over the next year or two,” he said.

Source: Business Desk

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