Dairy giant’s future in Iraq still unknown

Even with former World Trade Organisation director general Mike Moore now on its payroll, New Zealand dairy giant Fonterra is still no closer to knowing whether it will continue to supply Iraq with whole milk powder, according to company executives.

According to New Zealand government figures, Fonterra’s export trade accounts for about 30% of all internationally traded dairy product.

Fonterra, the sixth largest dairy company in the world by turnover, and first in export trade, has supplied Iraq with whole milk powder through the UN programme since 1998.

However, with humanitarian food supplies moving to US control later this month, the company’s contracts – worth between $37.5 and $50 million a year – are up for renegotiation.

Yet, Fonterra’s Philip Turner is “confident of a continuation” of trade with the country, despite the worsening security situation that threatens to delay the 21 November deadline for transferring contracts agreed under the oil for food programme to coalition control set out in UN security council resolution 1483.

“As long-term suppliers of Iraqi market, we are very keen to keep it going,” says Turner.

“As long-term suppliers of Iraqi market, we are very keen to keep it going” Philip Turner, executive, Fonterra

New Zealand opposition parties have voiced concerns that the government’s criticism of the invasion of Iraq had created a frosty relationship with the US and jeopardised local companies’ trade prospects.

But Fonterra has had assurances this will not affect its contracts’ chances of renewal.

Having attended the Madrid conference on the reconstruction of Iraq in late October, Turner says the interim Iraqi Trade Minister, Dr Iyad Allawi, personally assured him the matter is purely financial and logistical – and not political.

“There is no evidence that the importation of dairy product is being dealt with in any other way than a straightforward commercial manner,” says Turner.

He says Dr Allawi – whose ministry is responsible for food imports – also acknowledges New Zealand’s role as a traditionally important dairy supplier to Iraq.

“I spoke directly to the Minister of Trade, who welcomed our supply. He [Dr Allawi] is a very impressive individual and speaks better English than I do.”

Although Iraq currently only accounts for a small proportion of the company’s $8.14 billion annual turnover, Fonterra has long considered Iraq a “very important market”, particularly for whole milk powder, its biggest selling product.

Under the UN oil for food programme, it has supplied between 50,000 and 60,000 tonnes of whole milk powder a year – about 10% of the company’s overall trade in that product.

In the 1970s and 1980s, the New Zealand Dairy Board, as Fonterra was then known, also supplied Iraq with butter and cheese.

“Under a new regime,” he says, “there is huge potential to diversify back to other products; the Iraqi people will get the opportunity to have butter and cheese again.”

In the dark

Fonterra dairy products are found in various Arab countries

Turner insists the continuation of its contracts to supply Iraq with whole milk powder has nothing to do with politics.

“We’re just sitting back and saying ‘tell us how to be’. We’re not lobbying anybody.”

But then neither is the New Zealand government, despite the fact that Fonterra is the country’s biggest company.

“It’s something companies negotiate with the UN themselves,” says a Ministry of Trade spokesperson.

At present, the Oil for Food programme is in the final stages of prioritising the remainder of contracts that were agreed by the former Iraqi government, with inputs from UN agencies and the Coalition Provisional Authority.

“Once the programme transfers to the CPA on 21 November, the CPA will prioritise any remaining un-prioritised contracts and will also have full authority to renegotiate or cancel existing contracts as they come up for renewal,” says Nichole Roberton from the New Zealand Permanent Mission to the UN.

No middleman

Under the UN oil for food programme, Fonterra supplied between 50,000 and 60,000 tonnes of whole milk powder a year to Iraq – around 10% of the company’s overall trade in that product

Although final decisions on hundreds of contracts are still up in the air, Turner says the Madrid conference offered some good news for Fonterra and other companies dealing with Iraq.

“At the moment it’s a complex system that’s done through intermediaries,” he says.

Turner says a more direct system will “make life simpler” for Fonterra, which ships through third party re-packers from points such as Bahrain and the United Arab Emirates.

However, Iraqi Ministry of Trade officials indicated that such a process would take much longer for goods that are part of the current food rationing system.

“That’s because there are no functioning food markets in Iraq – and this includes milk products,” he adds. Despite any assurances, Turner admits that the eventual outcome “depends on the authorities on the ground”.

Skim milk fears unfounded

The United States government’s announcement earlier this year that it would dump up to 170,000 tonnes of skim milk powder onto the Iraqi food aid market has fortunately proved unfounded, says Turner.

“It doesn’t seem to be an issue. Iraq is a whole milk powder market and there’s a shortage of milk powder on the ground.” In addition, large bags of skim milk powder would need recombining facilities, which are not available now, says Turner.

Another threat, that dairy companies from Australia – which joined the US in the invasion of Iraq in March – might replace Fonterra’s contracts is also negligible, according to Turner.

“Their ability to deliver [milk] powder is severely constrained by a recent drought,” he explains.

Moreover, while Fonterra has not ruled out Mike Moore’s involvement if he is needed, Turner says the company is unlikely to use the former WTO director general and ex-Prime Minister of New Zealand in this arena.

Moore, who Fonterra hired in February this year as its senior counsellor on trade and global strategy, was recently involved in talks with China on the company’s behalf, but “hasn’t been involved in Iraq”.

Among other commitments, Moore is also special envoy to the New Zealand government on trade and a director on the South Australia Economic Development Board – which represents the economic interests of an area of Australia with major agricultural exports to the Middle East.

Moore preferred not to speak publicly on the topic of Fonterra and Iraq.