Wellington, Nov 20 NZPA - Fonterra is getting out of the business that was the cornerstone of New Zealand's multi-billion dairy industry -- the British butter market.

Eight years after Fonterra Co-operative Group Ltd cut a deal with one of its biggest competitors in Europe, Arla Foods, for a joint venture in the European butter and margarine markets, it is handing its share to its former rival.

Fonterra has sold its 25 percent stake in Arla Foods Fonterra (AFF), to Arla Foods of Denmark.

Fonterra chief financial Officer Jonathan Mason said the joint venture had been successful but Fonterra had "determined the investment was no longer core to the long-term strategy".

In essence, the farmer cooperative thinks it can make more money boosting its value-added ingredients sales and regional consumer businesses in Asia, Africa and the Middle East, Australasia, and Latin America.

Fonterra will continue to license the Anchor brand to Arla and to supply New Zealand butter.

Mr Mason did not disclose how much Fonterra has been paid for the stake, but said it would have a positive effect on the balance sheet.

AFF was established in 2002 to market "block" butter, spreads and aerosol cream products in the United Kingdom.

The nation's dairy exports were built on butter and cheese sent to Britain, initially by individual cooperatives, and from 1923 by a Government-backed export control board, which became the NZ Dairy Board in 1965.

It built Anchor into one of Britain's most popular brands and achieved 7 percent of the UK yellow fats market, even as yellow fats consumption fell by 55 percent.

But by the time Fonterra took over exports in 2001, 40 percent of New Zealand butter going to Europe was being shipped to the continent -- outside the traditional Dairy Board market in Britain.

But because New Zealand mostly produced yellow sweet cream butter, different from the paler butters that northern Europeans prefer, it was going into the ingredients market, bought by food manufacturers.

So Fonterra axed the Dairy Board's plant in Swindon -- and many of its 430 staff -- after switching the packing of New Zealand butter and other spreads to Arla's base in Leeds, and contracting out packaging of its cheese and aerosol cream.

The New Zealand dairy presence in Britain was also run down at Reigate.

Arla was created in April 2000 with the merger of Arla of Sweden and MD Foods of Denmark and became the EU's biggest dairy company, and Fonterra made the deal so that the joint venture could sell both Arla's Lurpak, and New Zealand's Anchor throughout Europe.

The joint venture began as the second biggest player in the British yellow fats market, with 15.6 percent of the market by volume, just over half the market share of Unilever, with 32 percent from brands such as Flora, I Can't Believe It's Not Butter, Olivio and Stork.

The union was unexpected because Anchor and Lurpak previously had a rivalry as fierce as Pepsi and Coca-Cola, and Anchor held top spot in the butter market for 74 years, losing it to Lurpak in 2000.