Fonterra and United Kingdom-based dairy co-operative First Milk have announced a joint venture to produce whey proteins for Fonterra's growing food ingredients business in Europe.
The two co-operatives will combine their intellectual property and industry knowledge to add value to the dairy protein streams at First Milk's Lake District creamery in Cumbria, England.
For Fonterra, the venture was the first step in realising its goal of local European sourcing to meet the nutrition ingredient demand of European customers, while, for First Milk, the deal added value to the whey side stream of the cheese-making process.
The deal underpinned Fonterra's strategic focus on premium dairy ingredients. The co-operative was pleased to be working with First Milk, enabling Fonterra to offer customised, premium whey protein ingredients to the major food and beverage companies in Europe, Fonterra Europe's managing director, Koert Liekelema, said in a statement.
While the UK market remained the "bedrock" of First Milk's business, it was important the co-operative explore opportunities that had the potential to deliver enhanced returns to its dairy farmers, chief executive Kate Allum said.
The whey proteins from the First Milk Lake District creamery will be applied in Fonterra's functional and cultured nutrition ingredients such as PowerProtein and ElevateProtein.
While Fonterra has reaffirmed its forecast payout to dairy farmers for the 2012 season - in the range of $7.15-$7.25a kg of milk solids - ASB economists say they would feel "more comfortable" in achieving current payout levels if US dollar dairy commodity prices lifted from current levels.
"Based on our forecasts, the higher New Zealand dollar needs to be offset by a rise in dairy commodities. Dairy prices lifted in the southern hemisphere spring last year and we will need to see a similar trend this season," the bank's latest rural economic update said.
The high New Zealand dollar, currently more than 20% higher than last year's levels, was likely to be of some concern to Fonterra.
"However, we suspect the co-op has been able to take advantage of some dips in the New Zealand dollar to hedge their currency exposure."
Unfortunately, that would suggest that the full negative impact of the high dollar might not be felt in the dairy payout until the 2013 season.
