Fonterra relaxed as competitors’ shares plummet

Fonterra [NZX: FSF] has brushed off concerns a new Chinese cross-border e-commerce law, which was a factor in its competitors’ share prices plummeting yesterday, will damage its business.

Shares in A2 Milk [NZX: ATM], Blackmores and Bellamy’s Organic all fell, with Blackmores posting ones of its biggest one-day falls on record, diving almost 20%.

A2 was one of the biggest declines on the NZX yesterday, dropping 6.3%.

The sell-off was in large part sparked by China cracking down on imported food and consumer goods at airports and free-trade zones.

This follows changes to its e-commerce law last week which saw the People’s Republic looking to protect its domestic retailers by adding an almost 12% tax on products bought from foreign websites.

But, as Aussie dairy company shares suffered, Fonterra’s shareholders’ fund remained relatively flat.

Fonterra’s vice president for greater China brands, Jillian Laing, says the new law’s impact on the cooperative’s business will be “very minimal.”

“Less than a percent of Fonterra’s products are sold through cross-border e-commerce channels,” she says.

Under the new law, Chinese officials issued a “positives list” of products allowed into the country of which liquid milk and adult milk powder were not included. Infant formula, however, did receive the seal of approval.

Murray Goulburn confirmed yesterday its Devondale consumer milk powder and long-life milk has been temporarily removed from some Chinese websites.

But Ms Laing seems optimistic Fonterra’s operations in the People’s Republic won’t be hindered.

“Our full range of brands are still available on all of China's major e-commerce platforms, distributed from within China, and in a wide range of retail outlets.”  

Still upbeat on China
At its annual meeting in November, Fonterra chief executive Theo Spierings was markedly upbeat about the cooperative’s future in China.

“We want to be No 1 in China,” he told shareholders.

Mr Spierings set his sights on Fonterra becoming the leading dairy player in the People’s Republic. 

He said Fonterra is aiming to double its business in China to $10 billion in revenue in the next five years.

“It’s a big number, I realise that,” he said. 

The plan means China could contribute 25-30% of Fonterra’s total revenue. The strategy would see 60% of business coming from selling ingredients, 20% from consumer and a further 20% from food service. 

Last month after the cooperative’s interim results, Mr Spierings says China still buys 814,000 metric tonnes of milk solids a year.

Asked if the cooperative was looking for capital partners in China, Fonterra chairman John Wilson said: “That’s still on the table but at the appropriate time and the appropriate investor.”

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