In TDB’s Dairy Companies Review for the 2018 financial year, we looked closely at Fonterra’s performance in comparison with other NZ dairy processing companies. The transparency of Fonterra’s different businesses has improved, allowing us to analyse the performance of the company’s ingredients segment alongside its value-add segment. While Fonterra’s overall return on capital over the past five years of 6% is lower than that of Tatua (19%), Open Country (11%) and Synlait (9%),

Fonterra’s core ingredients segment has been performing well and delivering returns above its cost of capital. It is Fonterra’s “value-add” segment that is increasing costs faster than it is increasing revenue. This leads us to question whether the move up the “value chain” has been more a case of moving up the “cost chain” and whether Fonterra would be better off sticking to its core business in the ingredients segment. See our report and related media coverage (right).