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Fonterra says it plans to build a new 45,000 tonne drystore and a 17,000 tonne coolstore on the former 16.45ha Fisher and Paykel site at Mosgiel.
"This will mean significantly fewer truck movements on roads between the site, Port Otago and Southland," said Fonterra's director of group manufacturing and supply chain Gary Romano said.
"It will also achieve a further reduction in the carbon footprint of our transportation operations." Fisher and Paykel Appliances Holdings Ltd, a listed company, told the NZX today the sale of the site and factory buildings to Fonterra went unconditional last week.
Fonterra has existing coolstores in Dunedin, and also uses two Polarcold sites run by Scales Corp, but some of these sites are being eyed by other developers.
The Mosgiel site has its own rail spur off the Ontrack line to Middlemarch, and could easily be linked by rail to two of the world's biggest dairy factories at Edendale, in Southland, and Clandeboye, 32km north of Timaru. Though Clandeboye needs a new spur line to link it to the existing rail network.
Climate change and land-use conversion mean increasing proportions of the nation's milkflows will come from irrigated farms in Canterbury and relatively "drought-proof" farms in Southland.
Fonterra has already made rail as a major transporter of dairy exports to ports in the upper North Island and has constructed a cool store at its existing dry store hub on Hamilton's Crawford St which it estimates has eliminated 45,000 truck movements between the Waikato, Auckland and Tauranga.
Today's announcement shows the scope for it to set up a similar hub at Mosgiel, on the doorstep of Port Chalmers, and 240km south of its Clandeboye factory. Ontrack has set aside a rail corridor for a spur line to Clandeboye, and Edendale, 162km south east of Mosgiel, already has two rail loading points.
Trains from Mosgiel can also connect with Port Chalmers, where big container line Maersk picks up commodities from both the Edendale and Clandeboye factories.
Mr Romano said the new Mosgiel site gave Fonterra a greater opportunity to use rail.
"For Fonterra, the development will mean a much simpler supply chain network in the South Island," he said. "It will consolidate the company's cool store operations in Dunedin - currently spread across a number of sites in the region. "It will also meet the additional storage requirements stemming from the construction of a fourth powder plant at the company's Edendale site".
There would be benefit for customers through improved service from a more efficient network.
The Mosgiel development's operations will be modelled on the Crawford St warehousing and distribution, which began in June 2005. Mr Romano said throughput at Crawford St was improving and over the past three seasons Fonterra had increased the tonnage of product packed at the store by more than 40 percent.
Construction of the new store will start in July 2009, in addition to the building work, the operation will create more than 30 new jobs.