BRAZIL – Fonterra Co-operative Group Ltd and Nestlé have completed the sale of their joint venture, Dairy Partners Americas (DPA) Brazil, to French dairy company Lactalis.

This sale, worth approximately US$140.5 million at current exchange rates, marks the end of the joint venture formerly held by the New Zealand dairy co-operative and the Swiss food group, now under the control of Lactalis Brasil.

The completion of the sale follows an agreement reached between Lactalis, Fonterra, and Nestlé in December 2022, with regulatory approvals being the final step in the process.

The investigative arm of Brazil’s competition authority, CADE, initially recommended blocking the deal in August 2023 due to concerns about potential competition issues related to cold dairy markets.

CADE expressed specific concerns about horizontal effects, pointing out a potential overlap in milk collection in the states of Pernambuco, São Paulo, Paraná, and Minas Gerais.

Additionally, CADE raised concerns about vertical integration, enabling DPA to access milk, powdered milk, and powdered whey supplied by Lactalis to manufacture its products.

While competition in segments like fermented milk, petit suisse, and dairy desserts was at risk, yoghurt, cream cheese, and milk production were not considered to be under significant threat.

Lactalis defended against these concerns by emphasizing the strong competition in the markets involved, with participation from national players like Danone and Vigor, as well as regional players like Tirol, Frimesa, and Frutap.

However, CADE concluded that there were only a limited number of competitors in the market, and they had little ability to challenge the market power that might result from the transaction.

Fonterra’s CEO, Miles Hurrell, explained that the decision to sell DPA Brazil aligns with their strategy to focus on their New Zealand milk pool, allowing them to allocate resources to their core businesses.

“The sale proceeds, valued at BRL 700 million (approximately NZD 240 million), will offset the debt related to the business, with a minimal cash impact on Fonterra’s earnings.”

While the completion of the sale has taken place, final transaction proceeds are still subject to customary post-completion adjustments, and Fonterra’s FY24 announced forecast earnings range of 45-60 cents per share will continue to reflect the underlying performance of the business, excluding one-off transactions.

Saputo announces closure of Lancaster, Wisconsin manufacturing facility

In another development, a Canada-based dairy major, Saputo has announced the closure of its manufacturing facility in Lancaster, Wisconsin, in the fourth quarter of its 2024 financial year, which runs from January to the end of March next year.

The closure will affect approximately 100 staff members, who will be allowed to transfer to other unspecified Saputo facilities.

Saputo decided to close the Lancaster site after it recently converted a third plant in Wisconsin, in Reedsburg, which will take on the production carried out in Lancaster.

The company sees this as part of its strategy to strengthen the competitiveness and long-term performance of its USA cheese network.

Lino Saputo, the chair, president, and CEO of Saputo, noted that network optimization initiatives will increase operational efficiency and capacity utilization in the USA sector while improving cost structure.

Saputo is scheduled to publish its second-quarter financial results next week, and the closure of the Lancaster facility is part of its ongoing efforts to enhance its operational efficiency.