Fonterra, A-ware venture

Fonterra and Netherlands-based A-ware Food Group have signed an agreement to develop a cheese plant and dairy ingredients plant in Heerenveen, in the north of the Netherlands.

A-ware will operate the cheese plant, while Fonterra will operate the dairy ingredients plant. Construction of both plants is scheduled for completion late next year.

Cheese will be produced for A-ware's customers in Europe and the whey and lactose produced will be processed into dairy ingredients for Fonterra's global customer base.

The investment fitted well with the strategic priorities of both companies, Fonterra chief executive Theo Spierings said.

Last week, Fonterra announced it would invest more than $100 million in a new UHT (ultra-heat treated, or long-life) milk-processing plant at its Waitoa site in Waikato, enabling it to meet growing demand for UHT products in Asia.

Meanwhile, Forsyth Barr has warned Fonterra's share of milk processing in New Zealand is likely to fall further as new entrants and existing players increase independent processing capacity.

Two Chinese players have applied to the Overseas Investment Office to build new capacity in South Canterbury and Waikato.

Yashili New Zealand Dairy Co is awaiting Overseas Investment Office approval to proceed with a $210 million infant milk formula plant at Pokeno, while Yili plans to spend $214 million establishing an infant formula plant in South Canterbury.

Increasing competition for raw milk would create regional supply issues for Fonterra and limit its longer-term growth outlook, Forsyth Barr adviser Haley van Leeuwen said.

A fall in Fonterra's share to below 80% in either island would trigger a legislated process that could lead to industry deregulation and increase barriers for new entrants.

The Fonterra Shareholders Fund (FSF) had performed strongly since listing at $5.50 and was trading above intrinsic value. Forsyth Barr retained its ''reduce'' recommendation for FSF with a $6.50 target price.