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New Zealand milk company Fonterra finds China formula

by SUE NEALES
THE AUSTRALIAN, 4 Jun 2015 12:00AM

The world’s biggest milk company, New Zealand’s Fonterra, has started to blend the first trial batches of specialist infant ­formula for its new joint venture partner, China’s Beingmate, at its hi-tech Darnum processing plant in Victoria.

The world’s biggest milk company, New Zealand’s Fonterra, has started to blend the first trial batches of specialist infant ­formula for its new joint venture partner, China’s Beingmate, at its hi-tech Darnum processing plant in Victoria.The move marks the beginning of a new formal supply and offtake agreement between Fonterra and Beingmate for high-value infant and child formula mixes produced and manufactured in Australia, to supply booming Chinese demand for safe and high-quality ­nutritional milk-based powders. The managing director of Fonterra Australia, Judith Swales, said the Darnum plant, in Gippsland, would become the global centre of Fonterra’s high-value “nimble” manufacturing of specialist paediatric nutritional powders, based on its year-round ­access to local high-quality fresh milk. Fonterra has just finalised its $NZ740 million ($680m) purchase of 18.8 per cent of Beingmate, the 22-year-old private Chinese company that has 1000 stores in China and a key 10 per cent share of its $18 billion infant formula market. In a separate deal, still being completed, Beingmate will acquire 51 per cent of a new joint venture that will own the Darnum plant and the right to half its annual 50,000 tonne output, while Fonterra will remain the factory’s operator, manager and 49 per cent owner of the joint venture. Ms Swales says the Darnum partnership will secure the future of the state-of-the-art $300m factory east of Warragul as a specialist nutritional manufacturer, and make it easier to invest in and expand the plant’s capacity, including the likely construction of a final-stage canning line. The continued suitability of the plant to supply the booming Asian infant formula market will also be guaranteed under the joint venture, despite tightening Chinese government import rules and requirements, because it will now be majority Chinese owned. Meanwhile, Beingmate gains the immediate secure supply of at least 30,000 tonnes of infant formula annually, custom-produced to its own special requirements from milk produced from Australian dairy farmers, while Fonterra gains access to Beingmate’s 1000 shops for its own infant formula brand, Anmum. “The 51 per cent joint venture is because the new rules say that any Chinese company selling its own brand of infant milk formula into China must have majority control of the supply chain from “grass to glass — or plastic bottle,” Ms Swales explained. “It’s a win-win for us both. “Beingmate will now be able to trace all the Australian infant formula it makes here and sells at home — and Chinese consumers want New Zealand or Australian- made infant formula — back to the farm, while we get greater visibility for our brands through to the Chinese consumer.” Ms Swales said the Chinese paediatric nutritionals markets — which includes infant formula for babies from birth to six months old, a follow-on formula tailored to 6 to 12 month old babies and another milk-based formula for toddlers — is set to double in size to $37bn by 2017. The growth, being fuelled by both the growing affluence of China’s middle class and the relaxation of the one child family policy, is likely to encourage the joint venture to rapidly increase Darnum’s production to 100,000 tonnes of nutritional powdered blends annually, without much extra investment. The plant is under-utilised, with its two giant driers not operating at full speed or for every hour of the day, 365 days a year. It buys 300 million litres of milk annually from about 200 local farmers around Gippsland. While milk only makes up about 20 per cent of infant formula blends — it has 25 to 30 other ingredients including vitamins, probiotics, whey, vegetable oils and minerals as it attempts to closely mimic human breast milk — Ms Swales is sure farmers will benefit from the expansion of the plant and the joint venture. Victorian dairy farmer Wayne Weller supplies nearly seven million litres of milk to the Darnum plant every year from his two ­family farms at Longwarry, near Warragul. Mr Weller is enthusiastic about Beingmate buying half of the Darnum plant which he has been supplying since it was first built by Bonlac in 1997, ­especially if it leads to higher milk prices paid to the farmers.