A deal with Chinese firm Beingmate will have investment worth $615 million in a global partnership to produce more infant formula for China and $555m will be spend on a new south Waikato plant and increasing South Island capacity to produce more milk powder.
Since 2011 Fonterra has spent $1.8b increasing plant capacity.
It says the Chinese infant formula market is now worth $18b but could be worth $33 by 2017. Plants in Australia and the Netherlands as well as those in New Zealand would be used to supply the new venture.
The partnership with infant formula maker Beingmate will create a fully integrated global supply chain from the farmgate direct to China’s consumers using Fonterra’s milk pools and manufacturing sites in NZ, Australia, and Europe.
The partnership is intended to increase the volume and value of Fonterra’s ingredients and branded products exported to China.
Fonterra will shortly start the process to issue a partial tender offer to gain up to a 20% stake in Beingmate.
After gaining regulatory approvals and Fonterra satisfactorily completing the partial tender offer, Fonterra and Beingmate will set up a joint venture to buy Fonterra’s Darnum plant in Australia and will establish a distribution agreement to sell Fonterra’s Anmum brand in China.
“Our strategy is to increase earnings by driving more milk volume into higher value categories globally by turning the wheel from commodities to higher-margin products,” chief executive Theo Spierings said in outling the domestic expansion which would give more flexibility as well as increasing capacity.
“By creating more options for our NZ operations we are better placed to be able to make the product mix that delivers the greatest returns to our farmers and meet the needs of our consumers and customers worldwide.”
Approval has been given to build a drier at the Lichfield site in south Waikato.
It will proces up to 4.4m litres a day and be similar in size to the world’s largest drier at Darfield which produces up to 30 tonnes of whole milk powder an hour or 700 tonnes a day.
Three plants will also be installed at the Edendale site in Southland.
On is a milk protein concentrate (MPC) plant which separates protein from skim milk and turns it into protein powder. It will process 1.1m litres a day.
A reverse osmosis (RO) plant will increase capacity on an existing drier by 300,000 litres a day.
An anhydrous milk fat (AMF) will process 550,000 litres of milk into cream a day.
Fonterra global operations managing director Robert Spurway said “We are investing ahead of the milk growth curve to give us the flexibility to take advantage of relative market prices, including during the peak season.
“It will also accommodate growth from existing farmers and new volume from joining farmers,” he said.
“We have to ensure we have the right balance with having the capacity to cope with additional milk produced during the peak of the season while making sure we avoid having millions of dollars’ worth of infrastructure standing idle in our quieter months.
“There will be 50 full-time jobs at Lichfield once the drier is complete and 25 more roles will be created once the plants are finished at Edendale.
“That’s on top of the hundreds of builders, labourers and others who will be working during the construction phase.”
Spierings said the partnership between two leading dairy nutrition companies will be a game changer that will provide a direct line into the infant formula market in China, which is the biggest growth story in paediatric nutrition in the world.
“By working together with Beingmate, we will strengthen our infant formula brand presence in China and link China to high quality ingredients from New Zealand, high value paediatric products made at Darnum in Australia, and whey specialty ingredients manufactured at our new plant in Heerenveen in the Netherlands and in alliance with Dairy Crest in the United Kingdom,” Spierings said.
"We will also work with Beingmate to evaluate mutual investments in dairy farms in China.
“This will be another milestone in our strategy to create additional demand for ingredients and high-value paediatric and maternal nutrition products made from our NZ milk, complemented by milk drawn from our other international milk pools.
“China is our number one market and the proposal to join forces with Beingmate will be an important building block in Fonterra driving volume and value and taking a step forward in terms of being a globally relevant co-operative.
“Our partnership with Beingmate will show the benefits of an integrated and secure supply chain, starting in New Zealand – our number one milk pool – where we are fast-tracking investment in milk processing capacity to meet global demand.”
Beingmate chairman Wang Zhentai said “Working together with Fonterra we will create globally competitive, safe and secure supply chains to deliver high quality, advanced dairy nutrition to meet the needs of China’s growing population as well global consumers.
Fonterra chairman John Wilson said “We are looking for this global partnership to take our relationship with China and its consumers to a whole new level.
“It will benefit Fonterra, Beingmate and all our stakeholders and is part of our drive to increase returns to our farmer shareholders.”
Wang said “The proposed partnership is well-aligned with the Chinese government’s desire to see a strengthened focus on quality and consumer safety in the local dairy industry.
“We believe this global partnership will play a constructive role in the development of China’s and the global dairy industry as both parties work together to drive a two-way flow of capital, technology, supply and distribution.”
Spierings said Beingmate has an extensive distribution network and local knowledge that complements Fonterra’s commitment to food safety and quality.
