Fonterra expects a financial hit from its decision to join hundreds of Western companies and exit its Russian investments.
The dairy cooperative last week announced it would be closing its Moscow office and disposing of its share in its St. Petersburg manufacturing joint venture Unifood.
The decision to break ties followed Fonterra’s suspension of exports to Russia earlier in the month in response to its invasion of Ukraine.
The West has met the invasion with a barrage of economic sanctions.
“We … suspended shipment of product to Russia while we assessed the impact of economic sanctions and discussed our long-term plans with our customers and joint venture partner,” Fonterra chief executive Miles Hurrell said in a statement.
“Following careful consideration of the impact on our people and our long-term plans for the Russian market, we will now close our office in Moscow, redeploying staff where possible and withdraw from our joint venture Unifood.”
Fonterra employs seven people in Moscow and a further 35 in St. Petersburg.
Hurrell said sales to Russia, mainly butter, accounted for 1% of the cooperative’s total sales.
“Given the current strong demand for NZ dairy, we are confident in our ability to re-allocate this product to other markets,” he said.
While Fonterra, and its predecessor the NZ Dairy Board, has been exporting to Russia for more than 40 years, its involvement in local manufacturing has been more recent.
In December 2017, the cooperative took a 49% stake in Unifood, a joint venture with its Russian distributor, Foodline Galaktika, owned by a former Russian naval officer Maksim Ivanov.
Russian media at the time said the St. Petersburg factory established by the joint venture planned to manufacture and distribute products using both imported and locally-sourced ingredients and would employ 100 people.
However, the factory ran into problems early on, running at only 20-30% capacity as it struggled to source local milk and imported dairy products for further processing, according to local media reports.
The struggle to get its hands on enough imported dairy products wasn’t helped by the slow reinstatement of export licenses for NZ dairy factories, which had been blacklisted by the Russian government following Fonterra’s 2013 botulism scare.
It is understood Fonterra invested $30 million establishing Unifood but it wasn’t confirming this last week or the current book value of the shareholding.
In a statement the cooperative said it was “working through” the disposal of its shareholding with its joint venture partner.
Russian president Vladimir Putin has threatened to seize the assets of foreign multinationals shunning Russia and transfer them to “those who actually want to work”.
Fonterra offered no further details on the process for the disposal of its Unifood stake.
Any financial hit would be minor in the context of its multi-billion dollar balance sheet, however.
“Our exit of both Fonterra Russia and Unifood will come at a cost to the cooperative, however, that cost is less than $10m, so not considered material,” the statement said.
Fonterra’s decision to pull out of Russia came quickly.
Just a fortnight ago a source familiar with the cooperative’s thinking on the matter indicated there was no immediate intention to follow the likes of Shell and BP who were among the first Western corporates to signal their intention to exit Russian joint ventures.
Since then the trickle of companies pulling out of Russia has turned into a torrent as the war intensifies and sanctions pile up.
Ukraine President Volodymyr Zelenskyy told Western businesses they must leave Russia immediately because “it is flooded with our blood”.
Last week the country’s foreign minister posted online a picture of a child killed in the conflict alongside Nestlé’s corporate logo.
The Swiss food giant has scaled down its Russian business but refused to leave entirely.