Russians Take Over Nutritek

First NZ Dairy Products Company To Be Foreign-Owned

- by Jeremy Agar

Nutritek Group, a Russian corporation, has confirmed that it wants to take a 100% stake in New Zealand Dairies Limited, in Studholme, near Waimate, in South Canterbury. The Chief Executive Officer (CEO), Jim Dwyer, an American based in Russia, says he will be holding talks with Government ministers over Nutritek’s plans to invest a further $US100 million in the South Island plant. Nutritek had held 82% of NZDL ( Press, 31/3/09).

Earlier in March 2009 New Zealand Dairies Limited (NZDL) announced that it had cancelled plans to expand its dairy processing plant. The Chairman, Peter Lavery, an Australian, attributed this to market turmoil and tight credit markets. The announcement was pretty much ignored by the business press, probably because it’s a common cry these days. Normally viable companies are feeling the pinch. Dwyer confirmed that plans to expand were on hold.

NZDL was the first New Zealand dairy products company to be foreign-owned. Nutritek originally operated in Russia, Estonia and Ukraine, but, with domestic sales slowing, it wanted to expand into the Middle East, Africa and South East Asia. Nutritek had targetted China as a focus for future exports, and had aimed to secure 3% of the Chinese market by 2010, selling baby food and “nutritional” products. Dwyer, who declares himself to be a “consumer goods marketer” and turnaround specialist, now says the Asian brands are being reviewed as to their suitabilty for the Asian markets. 

New Zealand ’s reputation as a dairy producer appears to have been a reason for Nutritek’s interest in NZDL. Nutritek’s Website read : “With our acquisition of the Studholme dairy plant in New Zealand, we are able to purchase quality raw milk from NZ farmers”. The company referred to the Studholme factory as the producer of “ New Zealand milk at its best”. This was important as Nutritek could then promote its products as having been “made in New Zealand”.

In 2007, Nutritek announced “our first overseas plant”, the source of “ New Zealand milk at its best - that is the Nutritek group goal with the expansion of our market share as a global manufacturer. As New Zealand milk products are highly sought after, especially in Asia and the Middle East, Nutritek Group makes it our commitment to deliver quality milk to consumers in these regions.... With our acquisition of the Studholme dairy plant in New Zealand, we are able to purchase quality raw milk from New Zealand farmers”. Later that day the Website page was pulled, replaced by an explanation that the site was “under construction” ( Timaru Herald, 15/9/07).

What Had Gone Wrong?

NZDL’s plant at Studholme, beside State Highway 1, was set up in 2006. Its founding members, mostly local dairy farmers, said at the time that they envisaged an NZ-owned company which would help generate internal competition for the niche marketing they planned. Sir Clifford Skeggs, a Dunedin businessman on the founding board of directors, said that he joined the company to preserve local jobs by finding an alternative use for the building that had housed a failed vegetable processing plant.

From the start NZDL was short of capital, but, by March 2007, none had been raised. That May Nutritek advanced $24 million in return for a 5.6% stake. Three months later Nutritek had raised its investment to 9%. At that stage the Russians stated that they aimed at acquiring 35% of NZDL. Nutritek wanted a global reach. Brian Wagstaff, a Nutritek analyst based in Singapore, advised them to start small : “What you will get is an undertaking from shareholders willing to sell down... I understand... the strategy to get into the NZ market is one of timing and understanding of the local environment. I am committed to making this happen as I am also committed to the Asian expansion” (North & South, June 2008, “From Russia With Cash” , Mike White).

Wagstaff knew that South Canterbury farmers tended to be pragmatic. While they had few objections to a mutually useful injection of foreign capital, the farmers had set up the company to be locally controlled. As NZDL had a rule limiting one investor’s share to 20%, they assumed they had nothing to worry about. Wagstaff e-mailed an apparent confirmation of this to a shareholder : “I haven’t said that it’s to help Nutritek get more shares”. In April 2007, as doubts about Nutritek’s real aims grew, Lavery told NZDL’s board that Nutritek “do not wish to take a majority position or anything like that”. Four local investors on the board of ten, including the chairman and founder, quit. Farmers petitioned against Nutritek’s dominance, charging NZDL’s board with having made no attempt to find any investors except for Nutritek ( Press, 13/9/07).

Francis Dawson, an Auckland lawyer on the reformed board, said that claims that Nutritek was bidding for majority control were “total nonsense”. Dawson added : “The NZDL board has always worked by consensus”. In May 2007 Dawson was equally direct. He was asked if Nutritek’s insistence on adding to its holding beyond the agreed limit meant it sought a controlling interest : “No ... it doesn’t and has not intended an outcome of control” (North & South, ibid.).

Lavery warned against the risk involved in a “fragmented ownership” and “compliance costs” if the locals didn’t go along with Nutritek’s plan. There was talk of “distressing” breaches of confidentiality ( Press, 28/11/07 & 23/5/08). The goal posts kept shifting. By September 2007 Nutritek had put $75 million into NZDL and had come to dominate the board, 40% of the directors being from overseas. In October, the new venture was announced. In March 2008 Nutritek said it had increased its investment to $115 million. Skeggs was unimpressed by “the most disorganised board of directors” he had come across (North & South, ibid.). NZDL’s founding chairman, Kelly Diprose, wrote to the Overseas Investment Office (OIO) : 

“We were concerned to see that the OIO had a full and correct factual background and that it was aware of links between shareholders that may affect Nutritek’s real level of control both now and if the application for a claimed total of 35% is granted.  Also, there is evidence Nutritek’s application may omit critical information or be misleading.  If consent is granted the bar will be set so low that nothing will be refused and getting consent to buy NZ land and, in particular, primary industry will be as simple as spending the money then getting the ‘rubber stamp’” ( Timaru Herald, 27/10/07).

Meanwhile Nutritek had sent letters to former directors warning them not to act against the company. Ngai Tahu Te Waihao runaka chairperson John Wilkie said he had been asked to support a dairying enterprise, but he had not been told it was to be under foreign ownership : “The area is important to iwi and must be protected from harm. It is not desirable for the creek to be sold to overseas people or for the people of New Zealand to lose control of it” ( Timaru Herald, 30/10/07).

Charm Offensive “To Secure Raw Materials”

Nutritek’s application to OIO to buy up to 100% of NZDL was lodged in August 2007 and soon approved. The responsible Ministers, Michael Cullen and David Parker, opined that the ownership of the Studholme plant by the Russian company was “likely to result in the creation of new jobs or the retention of existing jobs. It would also introduce new technology and business skills into NZ, boost competition and provide greater efficiency” ( Press, 28/5/08).

Jim Sutton, the former MP for Timaru and a Labour Trade Minister, let it be known that he and the NZ Ambassador to Russia had helped Nutritek : “I just think this is the sort of model of overseas investment we ought to be looking for” (North & South, ibid.). Nutritek, however, didn’t seem interested in introducing new jobs and technology, announcing that research and development would be based in Russia and the motive for buying NZDL was “to secure raw materials”.

Lavery was sanguine : “You can’t deregulate the industry and pretend overseas ownership isn’t going to exist. Fonterra has invested all over the place and you can hardly have a rule where people can’t invest in NZ but NZ can invest wherever it likes”. Lavery enthused over Nutitrek : “They’re providing an export market, they’re going to provide value added, they’re going to be training people to do things that otherwise New Zealanders wouldn’t be trained to do...” (North & South, ibid.).

Yet “Nutritek is not trading on New Zealand by mixing a range of substances and selling it as made in New Zealand. They have always had their own brands and that is what they sell” (Straight Furrow, 13/6/08). Nutritek added some local colour to its publicity : “In New Zealand we also see our role as being to represent Russia and its values in a positive way to help change negative stereotypes of Russian business.... We in Nutritek do not see ourselves as a foreign rugby team trying to play the All Blacks on their home turf. Rather we see ourselves as being on the side - with a mutual interest in a fair referee!” (North & South, ibid.).

The charm offensive continued, with a Russian delegation sent to wow the southern men. From Melbourne Lavery reported that the visit of a Russian folklore group to Studholme to “entertain the locals” was “well-received” (North & South, ibid.). Meanwhile, two hours up the road at Dunsandel, the Synlait plant opened in August 2008, backed by $30 million from the Japanese company, Mitsui. Unlike NZDL, Synlait is feeling bullish. In January 2009 the company announced that it wanted to double its capacity to three million litres a day, for the Asian market. That compares with 136 million litres of milk which NZDL has processed so far this year.


Non-Members:
It takes a lot of work to compile and write the material presented on these pages - if you value the information, please send a donation to the address below to help us continue the work.

Foreign Control Watchdog, P O Box 2258, Christchurch, New Zealand/Aotearoa. May 2009.

Email cafca@chch.planet.org.nz

greenball
Return to Watchdog 120 Index
CyberPlace