Fonterra’s business in Russia is probably worthless and the company should walk away from it, an industry leader says.
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VISAR KRYEZIU/AP Refugees are fleeing Ukraine following the Russian invasion.

The dairy co-operative, which is the world’s biggest dairy exporter and New Zealand’s largest company, has suspended shipments to Russia but continues to operate its entities in the country at this stage, said Fonterra’s director of global sustainability, stakeholder affairs and trade, Simon Tucker.

Fonterra has seven staff based in Moscow and another 35 at the Unifood joint venture it operates with its Russian distributor Foodline in St Petersburg. The safety of its people is Fonterra’s top priority, Tucker said.

“I can only imagine they are busy trying to work out how to extract themselves from Russia,” said Federated Farmers president Andrew Hoggard, who is a dairy farmer and a Fonterra shareholder.

“It’s going to be pretty pointless having any business in Russia because they are basically going to become a pariah state – what money we do have tied up there now is probably lost. There’s not much point of having either operating.”

Russia’s invasion of Ukraine has prompted an exodus of about 300 Western companies from the country, according to Yale University professor Jeffrey Sonnenfeld. Companies have cited sanctions, logistical disruptions and concerns about the safety of staff as reasons for pulling out and staying there is also a reputational risk. Russia’s economy ministry has warned it may nationalise foreign companies that exit.

Hoggard said it seemed there was no point in Fonterra continuing to operate in Russia, as the economy was going to collapse and the co-operative should wind down its operations, rescue what it could, and extract itself from the country.

Refugees are fleeing Ukraine following the Russian invasion.
VISAR KRYEZIU/AP Refugees are fleeing Ukraine following the Russian invasion.

For Fonterra shareholders, the Russian investment was not large, he said, describing it as “chicken feed” compared to the amount of money the co-operative had lost through its investments in China.

“Most people would realise the reality of the situation that even if they wanted to try and stay there, they’re cut off from international banking and even if the business were in some magical way going to make money, there’s no way of getting any money back to New Zealand. The economy is collapsing,” he said.

“It’s one of those situations where, you know, you have good investments, and then you’ve got investments you have just got to walk way from, and this is probably going to be one of those ‘walk away from’ jobs.”

Sanctions against Russia were likely to ramp up, causing further damage to the country’s economy and it could be down in the dumps for a decade or more, he said.

“It is kind of a case of just washing your hands of it really.”

Federated Farmers president Andrew Hoggard says Fonterra needs to walk away from its investment in Russia.
WARWICK SMITH/STUFF Federated Farmers president Andrew Hoggard says Fonterra needs to walk away from its investment in Russia.

On personal level, Hoggard said he agreed with the world’s move to cut off Russia to make everyone in the country understand that its actions in Ukraine were unacceptable.

“If they want to be part of this planet, they need to get rid of the little d…head of a dictator of theirs,” he said, referring to Russian President Vladimir Putin.

Still, Hoggard didn’t blame Fonterra for entering the Russian market, noting there was only a small part of the world open for New Zealand to trade with and Russia had a large population who were big consumers of dairy products.

Fonterra declined to comment on the value of its investment in Russia, whether its employees remained in Russia and if they were safe, and whether there was a risk that Unifood could be nationalised.

The company did not answer questions on whether it had any employees or operations in Ukraine, or exported to the country, or whether it was sending any food aid to Ukraine or to the Ukrainian people impacted by the war.

Fonterra’s Tucker has said that the company’s businesses in Russia do not supply sanctioned individuals or entities, including Russian military or security forces.

“While food, including dairy, is generally exempt from international sanctions regimes and can be traded, we have suspended shipments of product to Russia while we continue to monitor developments,” Tucker said. “This includes assessing the impact on both payment infrastructure and our supply chain to Russia.”

“We have people and customers in Russia who we need to think about. Any decision to exit would need to be thought through carefully. We are continuing to assess the situation and develop our long-term plans,” he said.

McDonald’s has chosen to withdraw from Russia even though it cost it US$50 million a month.
GENE J. PUSKAR/AP McDonald’s has chosen to withdraw from Russia even though it cost it US$50 million a month.

AUT professor of ethics and sustainability leadership Marjo Lips-Wiersma said companies weighing up whether to stay in Russia would be considering their long-term strategy, public opinion and their social licence to operate, consumer boycotts and their social responsibility.

“While there is much more self-sanctioning than might initially have been expected, and the collective effect is significant, some companies cannot or will not bear the costs or are afraid of the long-term strategic implications if Putin takes revenge,” she said.

However, by doing business with Russia at present companies were playing a part in keeping up Putin’s reputation, supporting the Russian economy, possibly indirectly sponsoring the war and maintaining ‘business as usual’ for the Russian people.

“Moral means doing the right thing in spite of the costs,” she said, noting that McDonald’s had chosen to withdraw from Russia even though it cost it US$50 million a month while Dunkin Donuts and Subway had not.

Some companies tried to take a “middle road” but this might also backfire, she said, citing the example of Heineken which first decided to donate to the war victims and when public opinion indicated that was not enough, also removed the Heineken brand (but not yet its other brands), and Bvlgari jewellery first said it would stay but under public pressure closed its shops.

Some, such as Philips, had opted for partial removal considering themselves what might be ‘nice to have’ (they removed electric toothbrushes) vs ‘need to have’ (they did not remove electric breastpumps and medical equipment), as they argued that while the war in the Ukraine was terrible they could not lose sight of the needs of the Russian people.

A spokesperson for the Ministry of Foreign Affairs and Trade did not respond to a question about whether Fonterra had taken enough action over Russia’s invasion of Ukraine.

The spokesperson said New Zealand had joined the international community in sanctioning Russia, which was already having an impact on companies’ ability to sell into Russia and on the Russian economy’s ability to purchase on international markets.

MFAT was updating New Zealand companies and industry bodies on the situation in Ukraine, the spokesperson said, adding that questions about specific commercial interests should be directed to the relevant businesses.

ACC, which invests in Fonterra through the co-operative’s NZX listed fund, was among a group of crown financial institutions that last week excluded Russian Federation sovereign debt and the securities of majority Russian state-owned enterprises from its investment portfolios, said chief investment officer Paul Dyer.

The institutions do not apply country-wide company exclusions, and companies are not excluded based solely on their Russian domicile as they may have no links or contribution to the aggression of the Russian state, he said.

ACC had spoken with Fonterra to better understand the actions taken in relation to Fonterra’s business and trade in Russia, Dyer said.

“ACC understands shipments of product into Russia have been suspended, but will continue to monitor the situation,” Dyer said.

At the midpoint of the year, the all-milk price forecast for 2022 is a whopping $26.20 per hundredweight (cwt), according to the June 2022 USDA/ERS Livestock, Dairy and Poultry Outlook report.

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