Fonterra this week announced the purchase of Nestlé Australia's yoghurt and dessert business for an undisclosed sum, and late last week a joint venture with Dairy Partners America to build a yoghurt production factory in Brazil.
Fonterra has identified expansion in Australia as a priority, and the Nestlé move was seen as meeting part of that goal, but the dairy giant was still expected to be a contender for the looming sale of Australia's third-largest dairy company, Dairy Farmers.
Lincoln University's head of farm management and agribusiness, Prof Keith Woodford, said securing rights to Nestlé's yoghurt and dairy dessert brands was necessary and strategic to fill a void in Fonterra's consumer product range and it took some pressure off it to buy Dairy Farmers.
"Fonterra's weakness in Australia has been an absence of a strong yoghurt brand, and to be strong in the chiller cabinet you need to be strong in yoghurts.
"There is strong loyalty to yoghurt brands."
For 28 years, from 2012, Fonterra would have the right to manufacture, market and sell Nestlé products including the key Ski yoghurt brand.
Ironically, Fonterra was taking over Nestlé's production and sale rights from Dairy Farmers.
Fonterra has repeatedly declined to comment about its intentions with Dairy Farmers, but regardless of whether it joined what was expected to be a long line of interested parties in buying the company, Prof Woodford said the Nestlé move was strategic.
"It does seem to be potentially a very strong asset for Fonterra regardless of whether or not they end up buying Dairy Farmers.
"It's a great position having that brand. It remedies an imbalance in Fonterra's portfolio."
But there was some disquiet among farmers at Fonterra's attention on Australia.
Some farmers have commented quietly that tighter controls over the use of water for irrigation in Australia would impact on future milk production, pushing up the milk price and making investments there costly.
Prof Woodford expected the price for Dairy Farmers to be high and attract the attention of food and dairy companies.
"There are synergies for food companies. It gives you more power with supermarkets if you are more than just a dairy company."
Dairy Farmers would still be a neat fit for Fonterra despite the Nestlé deal.
"It still means Dairy Farmers is valuable to them but not as crucial to them as it was."
Should Fonterra miss out on Dairy Farmers, the structure of the Australian dairy industry allowed it to get milk other than from shareholding or contracted suppliers through milk brokers acting on behalf of dairy farmers.
The deal includes Nestlé's Echuca factory.
The new Brazilian factory was also a joint venture between Fonterra and Nestlé through the entity Dairy Partners America.
It would target 50 million consumers in northeast Brazil with a potential market of $US380 million.
The $US40 million factory was expected to be commissioned by the end of this year.
