Friday, March 29, 2024

Making the most of milk

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Fonterra was able to shift, or optimise, its ingredients processing to the extent of 60,000 to 80,000 tonnes of higher-priced products during the past season.
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During mainly summer and autumn, after the milk peak had passed, it processed more non-reference products than in previous seasons, Fonterra’s global operations managing director, Robert Spurway, said.

Profitability was improved for the benefit of farmer-shareholders because of higher-stream returns, he told the recent Fonterra networkers conference in Auckland.

How much more revenue came from non-reference products Spurway was not able to say, because of a lag between production and sale, maturation times in the case of cheese, and stock exchange disclosure requirements.

Fonterra’s financial year doesn’t end until July 31; reference products (milk powders, butter and anhydrous milk fat) generate the milk price, non-reference products and value-add margins go towards earnings and dividends.

It would produce around 2.7 million tonnes of New Zealand products of all types this season; thus 60,000 to 80,000t represents about 2-3% of total tonnage.

Fonterra’s chief executive Theo Spierings said last week consumer and food service products now generated revenue approaching $5 billion annually and the ingredients to which value was added amounted to $4b.

Spierings was highlighting the extent of added value in Fonterra’s total output, and he said the $10b value-add portion of output in a year or two would compare favourably with that of Friesland Campina, his former Dutch co-operative employer.

Spurway said that $4b figure included non-reference products like cheese, casein, milk protein concentrate, and whey protein concentrate, and the value-add component of that revenue was compared to standard reference products.

“Every component of milk is turned into a saleable product and although the premiums gained per kilogram may look small, they add up to millions of dollars,” he told the networkers.

“We cannot look at just one product when we process milk, but at any and all by-products, their market demand and price points – that generates the stream returns.

“While the choice between, say whole milk powder or skim milk powder and butter, may look simple, when we make further splits into non-reference products the decisions are complex.”

Fonterra had a product optimisation group and Spurway said the options it had available on computer modelling were much wider than any other processor in New Zealand.

“That flexibility and the scale of our manufacturing, plus the diversity of our markets, deliver cost benefits not available to other processors.

“Balancing the processing pathways or streams to ensure we’re meeting customer demand while not overstocking on any particular product is no mean feat. 

“In an ideal world, we would turn 100% of our milk solids into the highest-returning stream. 

“In the real world, we don’t have capacity for that, and nor does the market have the demand.”

Spurway used the example of cheese manufacture and whey co-products that were separated by ultra-filtration into permeates (through the filter) and retentates (collected by the filter).

Whey retentates became whey protein concentrates for products such as sports supplements and infant formula, while permeates were lactose-rich and could go on to high-value medical grade lactose.

Spurway said the extra non-reference product processing this season was possible because of more processing capacity, especially for milk protein concentrate and the reduced milk output from shareholders’ farms.

The warm April and May had encouraged farmers in some regions to keep on milking and therefore Fonterra’s seasonal forecast of total collection volume had changed from -4% compared with the previous season, to -3% presently.

“We are making decisions daily on how to get the maximum value from milk still being produced.”

Fonterra’s optionality research and development would continue, into new products and techniques, he said.

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