By Kent Atkinson of NZPA Wellington, April 29 NZPA - New Zealand's "800 pound gorilla" -- giant dairy company Fonterra -- today paid $US201.9 million ($NZ260.5m) to buy up the rest of the shares in Chilean dairy company Soprole.

It now owns almost all of Chile's largest dairy company, despite a statement by Finance Minister Michael Cullen during 2004 trade talks that New Zealand's dairy sector would not compete with domestic producers there.

Fonterra already controlled Soprole with a 56.85 percent stake.

Today's additional 42.6 percent shareholding will give it 99.4 percent of Chile's second-most recognised corporate brand after soft drink Coca-Cola.

The former Dairy Board first bought into Soprole in 1988, and built it into Fonterra's third-largest investment in retail dairy markets, after New Zealand and Australia.

But New Zealand investment in Chile became controversial in 2003, when Chile suspended trade negotiations with New Zealand in December, under pressure from its dairy farmers worried about the incursion into their domestic market.

Talks revived when socialist president Ricardo Lagos took a trip to New Zealand in 2004 and warned "special measures" would have to be taken for the "sensitive" dairy sector because many Chilean dairy farmers feared New Zealand's dairy industry competing equally with them in domestic markets.

Dr Cullen promised Fonterra would not use the free trade pact to compete with the South American nation's milk producers, but to work with them to develop export products.

"Our ambition is to expand consumption in third markets elsewhere," said Dr Cullen.

"We're not seeing this as a means of coming here to grab the Chilean market from Chilean producers.

"The rest of the agriculture sector is not such a difficult issue, at least in a political sense.

"Dairy is the only area of the world's economy where we might be considered the 800 pound gorilla -- only in dairy -- and that can look a bit scary."

The trade negotiations were expanded to the P4 group of companies -- New Zealand, Singapore, Chile and Brunei -- which signed a wide ranging free trade agreement in 2006.

Now Soprole has more than one-third of the domestic consumer dairy market and is also exporting more dairy products than Fonterra sends to Chile.

Soprole in February announced its profit for the 2007 calendar year rose 160 percent to a record 23.8 billion Chilean pesos, or $NZ66.3m.

"Soprole has, on average, returned around $NZ25 million a year to Fonterra shareholders over the past few years," Fonterra's chief executive officer, Andrew Ferrier.

"By increasing our ownership, we will be able to build on this and look at ways we can grow the business.

"More than 40 percent of the company's sales have been from products introduced in the last three years.

"We want to continue that innovation drive ... in the rapidly expanding South American dairy markets."

The minority shareholder which sold out to Fonterra, Fundacion Isabel Aninat, is a charitable foundation run under canonical law and the purchase had to be approved by the Vatican.

Mr Ferrier said Fonterra was looking forward to a continued relationship with the Fundacion as partners in Prolesur, Soprole's southern dairy manufacturer: Fonterra owns 86.2 percent of Prolesur and the Fundacion will retain a direct 13.6 percent shareholding in Prolesur.

Mr Ferrier said Soprole was an example of Fonterra's strategies of building profitable businesses and securing new sources of fresh milk around the world.

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