No Use Crying Over Spilt Milk?

Fonterra may have its 43 percent share in its Chinese joint venture, San Lu, sold out from underneath it.

The China Daily is reporting that the Sanlu group may be forced into bankruptcy and be taken over by Beijing Sanyuan Food, a major Chinese dairy producer that is not implicated in the melamine-tainted milk scandal in China. Sanyuan has reportedly received a Chinese government order to consider a merger with Sanlu.

Perhaps revealing a degree of naivete about how business is really conducted in China, Andrew Ferrier, Fonterra's CEO told the Wall Street Journal, "no one has contacted our people on the board about a purchase."

This past week Fonterra has written down its book value for Sanlu from NZ$139 million to $62 million, based on an assessment that the Sanlu brand could not be resuscitated.

In addition to its initial purchase price for a stake in Sanlu of NZ$150 million in 2005, Fonterra has put a further $200 million into the joint venture.

In a period when New Zealand dairy farmers have been living on the cream of the land as international dairy sales boomed, they will surely be asking what happened to the management of their international investments.

The whole episode brings into question the naivete or innocence of New Zealand businesses operating in foreign markets where the rules of the game are markedly different from those in traditional or domestic markets.