Saturday, December 2, 2023

Fonterra’s Russian retreat grinds on a year later  

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Exports halted but Moscow sales office still open, awaiting ‘final regulatory clearances’.
A year ago Fonterra announced its decision to exit Russia following that country’s invasion of Ukraine. Photo Matti Karstedt
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Fonterra is still winding down its Russia business more than a year after announcing a decision to exit following the invasion of Ukraine.

Trade statistics show dairy exports from New Zealand stopped in April last year soon after Fonterra announced it would be pulling out of the Russian market, and have not resumed.

In a statement the co-operative said it exited its Russian joint venture Unifood last month but has yet to close its Moscow sales office.

“The wholly owned Moscow-based sales office is currently in the advanced stages of liquidation [which], subject to getting final regulatory clearances, is expected to be completed in May.

“Most of the Fonterra employees that worked in this sales office have been redeployed to other parts of Fonterra’s business,” the statement said.

Fonterra had employed seven people in its Moscow office and a further 35 at its Unifood joint venture in St Petersburg.

The co-operative said a confidentiality agreement prevents it from disclosing the terms of the disposal of its Unifood stake.

In March last year Fonterra said it expected a financial hit of less than $10 million from exiting its Russian businesses.

It is understood Fonterra spent $30m for a 49% share in Unifood, which it set up in 2017 with its Russian distributor Galaktika, owned by former Russian naval officer Maksim Ivanov.

Russian media reports at the time said the St Petersburg factory established by the joint venture planned to manufacture and distribute products using both imported and local ingredients and would employ 100 people.

However, the factory ran into problems early on, struggling to source local milk and imported dairy products for further processing, running at only 20%-30% capacity.

The struggle to get its hands on imported dairy products wasn’t helped by the slow reinstatement of export licences for NZ dairy factories blacklisted by the Russian government following Fonterra’s 2013 botulism scare.

In its statement, Fonterra said the St Petersburg factory is continuing to operate but it could not say who bought its stake or for how much. 

It would also not say if or by how much it had previously written down the value of its Unifood stake.

A lawyer helping NZ companies trading with Russia told Farmers Weekly the war in Ukraine has made it very difficult to get money out of the country.

Russian President Vladimir Putin had introduced capital controls to prevent a run on the country’s banks, effectively freezing the bank balances of Western companies. 

Even if it was possible to access money held in Russian bank accounts, Western financial sanctions would make it next to impossible to find a NZ bank willing to repatriate funds. 

Exporters are also being squeezed by Russian customs authorities. 

“At the eleventh hour just as your product is at the border they make you sign a waiver saying if anything happens to this consignment or if we have any problems we reserve the right to destroy it at your expense,” the lawyer said.

“You have got to have your wits about you and I think the vast bulk of Kiwi businesses have thought they might invest their time elsewhere.”

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