Fonterra has taken ownership of its first Middle East dairy factory, in a move the company says will allow it to serve a potential market of nearly $13 billion in Asia, the Middle East and Africa, while also signalling a subtle change in its strategy.
The company's managing director for the region, Mark Wilson, told visiting New Zealand journalists milk was considered sacred in Asia, the Middle East and Africa (AME), which meant the market of 615 million people was a developed rather than developing market and its dairy consumption, at 55 litres per capita, was one of the highest in the world.
The move also signals Fonterra's intention to take more control of the processing of its branded products offshore, after the Sanlu tainted milk problems of 2008.
Mr Wilson said Fonterra almost fell out of the market in China after Sanlu, but it had re-launched some key branded products, continued to sell commodity powders and had a large food servicing business there.
But, despite the market's potential, China still did not rate as one of Fonterra's top 10 buyers of branded products.
Fonterra announced earlier this year it was spending $42 million buying the 51% of the Saudi New Zealand Milk Products (SNZMP) factory, at Dammam in Saudi Arabia, it did not own; and earlier this week it completed the deal with a ceremony at the factory, which is close to the Saudi border with Bahrain.
The factory, apart from the searing heat and six different nationalities represented in its 250-strong workforce, looked like any in New Zealand, with dairy farm pictures on the walls and Fonterra livery, systems and standards in place.
Mr Wilson said two other dairy processors had recently opened factories in the Middle East, which gave an example of the region's potential, but SNZMP was one of the first factories in the Kingdom allowed to be totally owned by foreigners.
For Fonterra, AME already accounted for 20% of its consumer brand sales. These brought in $1.7 billion in 2009, 22% higher than a year earlier, and profits of $120 million, 19% higher.
The region also accounted for 20% of Fonterra's global dairy ingredient sales.
The SNZMP plant was built and commissioned in 1994 in partnership with a Saudi company, Saudia, and importantly for this part of Saudi Arabia, sits above a government-certified water bore.
Mr Wilson said the plant would source all its dairy ingredients from New Zealand. These would be made into a cow's feta and into jar cheese, which is a local delicacy sold in a small jar exposed to high temperatures to make the cheese runny.
The ingredients would also be made into various Fonterra-branded powders, including Anchor, the high calcium Anlene and the Anmum Materna milk powder.
Production would grow from 29,000 tonnes this year to a forecast 43,000 tonnes in 2013. Fonterra Brands AME managing director Amr Farghal said that within a 650km radius of the factory it could supply 80% of the 38 million people in member countries of the Gulf Co-operation Council (GCC): Saudi Arabia, Kuwait, Bahrain, Qatar, Oman and the United Arab Emirates.
Between 2006 and 2009, compound annual growth in the volume of exports to AME markets increased 15% and revenue 22%, while attention to cash flow resulted in demand for trade working capital falling 30%.
Demand for products was growing outside the GCC, with Iraq a booming market for jar cheese and Fonterra now eyeing large butter and cheese markets in the former Soviet Union states from its Saudi base.
• Agribusiness editor Neal Wallace travelled to Kuwait with the assistance of Fonterra.
