Fonterra admitted at the company AGM that it has lost the $200 million it invested int he Chinese company San Lu.
The Fonterra board openly concedes that it has had a difficult time and that San-Lu will going to go down in history as a bad investment for them.
When Fonterra’s top brass fronted before the country’s dairy farmers there was not a lot of good news to deliver.
Firstly, Fonterra is now admitting it has lost all of the $200 million of investment in the San-Lu joint venture.
“For this reason it is increasingly likely that we will have to write off the remaining $62 million of value in our San-Lu investment,” stated Fonterra’s Chairman Henry Van Der Heyden.
Fonterra had a 40 percent stake in San-Lu, which collapsed due to the contaminated milk-powered controversy.
Fonterra’s management says it is reviewing what went so badly wrong and concedes it had limited control.
That lack of control was the problem. New Zealand leads the world in dairying and one of the reasons for its reputation is strict quality control in every link of the porduction chain.
That wasn’t possible in China which has been a very expensive lesson for Fonterra and its shareholders.
Just a year ago most people thought that the growing demand for milk in developing country would continue to result in high returns for dairy products. But demand is droppping everywhere and while Fonterra’s forecast payout of $6 a kilo is still above the long term average, the white gold rush is over at least in the short term and very possibly for longer.