Fonterra expanding capacity

Fonterra's Edendale site, which will undergo major expansion. Photo by Peter McIntosh.
Fonterra's Edendale site, which will undergo major expansion. Photo by Peter McIntosh.
Fonterra will spend about $157 million installing three new plants at its Edendale site as part of a more than half-billion-dollar upgrade of processing capacity.

The upgrade, which includes a $400 million drier at the Lichfield site in south Waikato, was part of a trio of significant announcements by the dairy giant yesterday.

Fonterra is also forming a global partnership with Chinese infant food manufacturer Beingmate to help meet China's growing demand for infant formula.

Chief executive Theo Spierings described the partnership as a ''game changer'' that would provide a direct line into a market that was the ''biggest growth story in paediatric nutrition in the world''.

That market was worth about $NZ18 billion and was expected to be worth $33 billion by 2017.

Fonterra would soon start the process to issue a partial tender offer to gain up to a 20% stake in Beingmate.

Its investment in the partnership would be $615 million.

After gaining regulatory approvals, the two companies would set up a joint venture to purchase Fonterra's Darnum plant in Victoria, Australia, and establish distribution to sell Fonterra's Anmum brand in China.

China was Fonterra's ''number one market''and it wanted to be part of the growth in China, Mr Spierings told a media conference, via link from Beijing.

Beingmate ''was a very, very strong'' Chinese infant nutrition player, with 7000 employees and big factories ''all across the country''.

Meanwhile, Fonterra's investment in New Zealand would not only expand its processing capacity but allow for more flexibility to better optimise production, Mr Spierings said.

Last year, the co-operative encountered what it described as an ''extraordinary situation'', with the disparity between very high milk powder prices, and those for cheese and casein.

The co-operative devoted the maximum possible volume of milk to whole milk and skim milk powder streams, but was limited by its production facilities, and the remaining milk was converted to cheese and casein, which were generating lower returns.

''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,'' Mr Spierings said.

At Edendale, the three new plants comprise a milk protein concentrate plant, which will separate protein from skim milk and turn it into protein powder; a reverse osmosis plant that will increase capacity on an existing drier by 300,000 litres a day; and an anhydrous milk fat plant capable of processing 550,000 litres of milk into cream per day.

The development, once completed, will create 25 more roles at the site, which is Fonterra's oldest operating manufacturing site.

The new drier at Lichfield, a $400 million investment, will be capable of processing up to 4.4 million litres a day and it will mean an additional 50 full-time jobs.

Chairman John Wilson said the investment was about giving more flexibility to be able to maximise the value from Fonterra farmers' milk.

Coupled with a $235 million development under way at its Pahiatua site to develop a third drier, and investment over the last six months in the existing asset footprint, it meant about 10% more capacity across the peak, Mr Wilson said.

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