Friend,

Around 9,000 farming families across New Zealand are considering their Fonterra voting papers. The proposition is of critical importance to the entire New Zealand economy: selling iconic dairy brands like Mainland, Anchor, Kapiti and others to the largest dairy company in the world, French firm Lactalis.

Farmers must consider this very carefully.

The decision is yours. We caution you to think not of the short-term sugar hit from selling, but to the long-term security for their children, grandchildren, and country.

Why? It is there in black and white. The sale terms provide everything you need to know: after three years Lactalis can terminate milk supply from Fonterra for Anchor and Mainland.

Or to put it in the jargon of Fonterra, “the initial term is three years. Following the initial term, the Global Supply Agreement automatically renews until it is terminated.”

“Automatically renews until it is terminated” is corporate flannel, executive flimflam, tier one C-Suite rubbish that translates to: ‘after three years, we cancel.’

That’s it. Milk split. Fonterra will be a wholesaler. Lactalis will control your brands.

Farmers, under this deal you will not control the very thing that has underpinned your success for generations: quality.

Why would we expect Lactalis to offer any long-term security to New Zealand farmers? Every incentive is on Lactalis to do the opposite. The most direct commercial lever they will have is to terminate their supply deal, and dilute New Zealand milk with lower quality, cheaper milk and vegetable fat.

Why would we believe Lactalis would want to secure New Zealand milk for more than three years? If they do, why has Lactalis not offered a longer supply agreement? If they meant it, it would be in the deal. They want ten years of your raw milk for their own brands, but only want your raw milk for three years for Anchor and Mainland.

And where is the Fonterra executive? They have not been open and upfront. There has been a casual easiness about this sale, reported by a pliant media and welcomed by middle manager analysts who couldn’t run a tuck shop and don’t know what it means to have their livelihoods at risk.

Fonterra issued a press release and did a media stand up in August. Last Friday, they declined to do interviews and live on air we heard Radio New Zealand offer excuses for their non-appearance.

This week, former Fonterra Council Chair James Barron did an interview with limp defences of the serious questions we have asked. Mr Barron was Chair when Fonterra’s balance sheet took a $880 million hit from its ill-fated China Farms and Beingmate investments.

Fonterra executives have been invited to present their arguments to Select Committees twice. They have declined to do so twice. This, from a company that is a creature of statute and owes its existence to legislation passed in 2001 providing favourable regulatory settings.

Their ‘she’ll be right’ mentality is not the sign of hard-nosed commercial realist. That is the sign of people who have been sucked in and are expecting you to be too.

We, in a party called New Zealand First, are commercial realists.

We know that this country’s economic fortunes rest upon the hard-won sweat and tears of New Zealanders. You and your forebears, starting in 1886, built Anchor with 130 years of product development, consumer trust, just as all the other brands have been built.

For $4 billion, they are giving it away.

The short-sighted may have dollar signs in their eyes, having heard that farmers stand to have hundreds of thousands put in their bank account. But when the sugar rushes, the ants follow. Watch how quickly that money goes.

Will your children thank you when the interest in our milk dries up once Lactalis behaves like a rational commercial actor and reduces the percentage of New Zealand milk in their products? They will feel that decision at the farmgate price for years to come.

Fonterra tell you that these brands require billions to scale up. This is nonsense. Fonterra’s new UHT plant in Edendale is said to cost $30 million, and similar expansions are possible at similar costs. Further, Fonterra already partners with other companies to use their plants and equipment, like milk powder packaging in Christchurch and high-end milk processing in Hawke’s Bay.

There are companies who would support partnership deals so Fonterra can grow, but the short-term sugar hit is too appealing to those chasing short-term incentive payments.

Did you notice that CEO Miles Hurrell did not respond to the open secret put to him, that it is said he will depart Fonterra once his year-end bonus is paid? The company offered a flimflam statement about not having bonuses tied directly to this deal. Well, we know that. That is not how corporate bonuses work. Fonterra will have baked this deal into their full-year forecasts, and achieving that forecast is what drives the bonus.

Some of us are here for the long-term future of this country. If this deal proceeds, then perhaps we need to revisit the regulatory environment for Fonterra. Fonterra is required to sell a portion of its raw milk to other New Zealand producers, and these rules have been relaxed in recent years.

Without the value-add of consumer brands owned by Fonterra, it is reasonable to ask whether Fonterra should sell more of its milk to other producers so they can develop New Zealand products.

Lactalis need to know that the preference position they seek to buy and exploit is not guaranteed.

Farmers have a choice, and we hope they will make the right decision.

In the end, we will ensure New Zealand’s economic interests are safeguarded even if Fonterra executives do not.

Yours sincerely,

Rt Hon Winston Peters

Leader of New Zealand First

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