Fonterra sheds jobs in biotech bombshell

By Duncan Bridgeman

Friday 4th June 2004

Dairy giant Fonterra has cut its $150 million funding package to biotech subsidiary ViaLactia in a major restructure sparking high-level redundancies.

The shockwaves will also be felt across government-funded joint ventures with Crown research institute AgResearch, Meat New Zealand subsidiary Agritech Investments and DEEResearch.

The restructure targets areas of research that have no direct benefit to Fonterra, such as ViaLactia's genetic testing to improve pasture varieties and research into animal breeding outside milk composition.

ViaLactia chief executive Colin South flew to the US yesterday to attend a week-long biotechnology industry convention, leaving negotiations with staff in the hands of Fonterra chief financial officer Graham Stuart, who holds the dairy giant's purse strings.

The company has about 40 scientists working on three priority areas, including work with Hamilton-based Livestock Improvement Corporation (LIC) to identify valuable cattle genes, using genetics to improve rye grass and white clover and research into converting grass into milk.

It is understood only the last area is safe from the restructure, as any indirect benefits or on-farm improvements are not considered core research for Fonterra.

It is also understood ViaLactia has not renewed a lease on its Ellerslie-based office, forfeiting $80,000 in the process.

A spokesman for Fonterra said the company would not comment on the restructure while consultations with staff were continuing.

The restructure is likely to have wider implications for the biotechnology industry, with government funding expected to come under the spotlight.

At issue is whether certain research is being funded commercially or through various government organisations and Crown research institutes.

But it is likely that Pastoral Genomics a joint venture between ViaLactia, Meat New Zealand, AgResearch and DEEResearch will bear the full brunt of the cut in funding.

The research centres on discovering how white clover genes influence pasture performance, with a view to lifting farming sector productivity. The research is not seen as directly benefiting Fonterra.

The joint venture has received government funding worth $12 million spread over five years. The four partners were to contribute at least that much again.

A twist is that Fonterra is embroiled in a partial takeover of rural services firm Wrightson by former Fonterra chief executive Craig Norgate.

Fonterra, which owns 19.2% of Wrightson through RD1.com, has rejected Norgate's Rural Portfolio Investment's $1.65 a share offer, saying it would receive a better return on its investment in Wrightson by continuing to hold its shares.

Interestingly, Wrightson has a joint venture with listed biotech firm Genesis Research to work on grass nutrition to improve livestock productivity.

Norgate has indicated RPI might sell Wrightson's unprofitable Genesis stake if his bid for control is successful.

ViaLactia's joint venture with LIC, BoviQuest, is also likely to be affected.

It received $60 million of the $150 million the dairy industry committed to biotechnology over five years. The idea was to use the money to fund genomic research into enhancing the production and composition of milk and to look at animal health issues. There is doubt whether all the work fits in with Fonterra's strategy.

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