As part of its current review of the Dairy Industry Restructuring Act (DIRA) the government asked whether the intended benefits of the 2001 industry restructure have been realised. While parts of the industry have flourished (eg, A2 Milk, Synlait and Open Country Dairy), Fonterra’s financial performance has been well below the expectations for the company when it was established.

The mega-merger that created Fonterra was expected to deliver $310 million per annum in synergy gains. TDB estimates that if Fonterra had delivered the benefits that were projected, Fonterra’s share price should now be $7.60 to $8.80, compared with its current share price of below $5.00. Revenue has fallen well short of the targets set and the anticipated contributions to earnings from value-added products has not materialised. Overall, Fonterra’s long-run financial performance has not been satisfactory. Looking ahead, the question is: how can the situation be improved? First and foremost is shareholders recognising the limitations of the status quo.