The $15 million deal is not big in size but strategically is a key change in the dairy processing market, with the loss-making Fonterra Australia franchise returning to basics.
Parmalat, which has recently won the Woolworths house brand milk contract in NSW, will move to concentrate all its processing activity away from its old base in Queensland and will assume the Ski Yoghurt contract with Nestle.
Fonterra has suffered sharp falls in sales, with the brand dropping from $157m to $65.2m over the last five years.
Its share of the yoghurt market has fallen from 16.5 to 7.5 per cent and Parmalat will attempt to revive the brand’s fortunes.
The move comes as market leader Murray Goulburn keeps pressure on the rest of the industry by maintaining high farm gate prices of $5.60 a kilo of milk solids against Fonterra’s price in New Zealand of $NZ4.80 ($4.50).
The collapse in the global market has forced the likes of Fonterra to slash prices for its farmers and critics say M-G is keeping its price artificially high to support its recent capital raising.
The company rejects this, saying its ability to sell value-added product to China and other Asian markets has helped offset the impact of low global milk prices.
Fonterra Australia is estimated to be losing more than $150m a year. Earlier this year it sold its $70m stake in Bega Australia but maintains its licensing agreement with the Bega Cheese brand in Australia.
Source: The Australian