Fonterra expands in NZ and proposes partnership in China

August 27, 2014

A newsletter to suppliers from Fonterra chair John Wilson announces plans to expand processing in New Zealand and the proposal for a new partnership in China:

Your Board has given approval to build a new high efficiency milk powder drier in the North Island and further increase milk processing capacity in the South Island to help meet global demand for dairy products.

This investment, totalling $555 million, will grow the Co-operative’s processing capability and allow for more flexibility to better optimise production.

New Zealand is our most important milk pool.  Our strategy is to increase earnings by driving more of your milk into higher value categories.  It’s all about turning the wheel from commodities to higher-margin products.

Key points on the new Lichfield drier:

  • Capable of processing up to 4.4. million litres per day
  • Similar in size to the world’s largest drier at Darfield which produces up to 30 metric tonnes of Whole Milk Powder per hour, and 700 metric tonnes per day
  • Will use the latest energy-efficient processing and water reuse technology.

Three plants will also be installed at our Edendale site in Southland.  Key points are:

  • Milk Protein Concentrate (MPC) plant which separates protein from skim milk and turns it into protein powder – capable of processing 1.1 million litres per day
  • Reverse Osmosis (RO) plant which will increase capacity on an existing drier by 300,000 litres per day
  • Anhydrous Milk Fat (AMF) plant capable of processing 550,000 litres of milk into cream per day

In total, the development of Edendale will increase capacity by 1.4 million in milk, and 550,000 litres of cream processing per day.

Global Partnership with Beingmate

We are establishing a global partnership with Beingmate, which is one of the leading infant food manufacturers in China.  Beingmate is already a long-standing customer – and is a well-established and respected company in China.

Our partnership will be the next milestone for our strategy, as it will increase the volume and value of our ingredients and branded infant products exported to China.

Together we will create a fully integrated global supply chain from the farm gate direct to China’s consumers, using Fonterra’s milk pools and manufacturing sites in New Zealand, Australia, and Europe.

This global supply chain will see more of our high quality dairy ingredients and our Anmum™ brand exported from here in New Zealand. It will see more high value paediatric products made in Australia for China at the Darnum plant – that is our second milk pool. And it includes a third milk pool in Europe where whey specialty ingredients will be manufactured at our new JV plant in the Netherlands, and through our alliance with Dairy Crest in the UK.

This partnership is about volume and value.  The value will come from accessing Beingmate’s extensive distribution and sales network in the infant formula market in China.  This market is today worth around NZ$18 billion – and is expected to be worth nearly NZ$33 billion by 2017.

This partnership will come together in two phases:

We are starting the process to issue a partial tender offer to gain up to a 20 per cent stake in Beingmate. Depending on the response to the tender offer, Fonterra’s total investment in the global partnership will be in the range of NZ$615 million (including proceeds from the JV in Australia), funded through debt.  

After gaining regulatory approvals and Fonterra satisfactorily completing the partial tender offer, Fonterra and Beingmate will set up a joint venture to purchase Fonterra’s Darnum plant in Australia and establish a distribution agreement to sell Fonterra’s Anmum brand in China.

The purpose of the proposed joint venture will be to manufacture nutritional powders, including infant formula and growing up milk powder at Darnum, for Beingmate as well as Fonterra.

Beingmate will own 51 per cent of the JV to satisfy Chinese regulatory requirements.

The JV will be governed by a Board, and Fonterra and Beingmate will each appoint two directors. 

We will manage Darnum’s operations, under a formal management agreement.  We will also supply raw milk to Darnum.

Summary

Today’s announcements are a major step forward in our strategy to be a globally relevant co-operative so that we can will deliver increased returns to our farmers – through both the Milk Price and dividend – during the ups and downs of global dairy price volatility.  We are financing the increases to processing capacity and our partnership with Beingmate from a solid balance sheet position, and a strong gearing position will be maintained.  These investments are intended strengthen returns by:

  • Turning more New Zealand milk into higher value products  
  • Optimising the use of our Co-operative’s global assets  
  • Investing in capacity and flexibility of our New Zealand assets  
  • Building a fully integrated global supply chain. . . .

This is very good news for the company and the communities where it is expanding processing because of the jobs that will be created.

The board also decided to hold the forecast farmgate payout at $6 a kilo.

Along with a previously announced estimated dividend range of 20-25 cents per share, the forecast Cash Payout for the season is $6.20-$6.25.

The decision to maintain the forecast Farmgate Milk Price reflects the longer term outlook for international prices for dairy. Current market views supported by our own forecasting indicate commodity prices improving later this year or in early 2015, with global demand for dairy continuing to grow year-on-year. 

While the long-term market fundamentals remain sound, we need to recognise that the current conditions are difficult and there remains further downside risk.

There is still volatility. This reflects challenges with supply and demand following a good dairy season globally. Given these factors, the forecast is our best judgement at this time.

It is early in the season, and it is important to continue exercising caution with your farming business budgets. The reality is, we expect to see ongoing volatility, and we will keep you informed as we move forward.

Russia’s decision to block European imports and cheaper grain prices which are leading to an increase in production in the USA will both have an impact on the supply of milk and other dairy products.

Fonterra and its suppliers are right to be cautious.

For more see media releases:

FONTERRA INCREASES PROCESSING CAPACITY TO HELP MEET GLOBAL DEMAND

FONTERRA AND BEINGMATE INITIATE GLOBAL PARTNERSHIP IN CHINA’S HIGH-VALUE INFANT FORMULA MARKET

FONTERRA MAINTAINS FORECAST FARMGATE MILK PRICE FOR 2014/15 SEASON


Rural round-up

September 3, 2013

Fitch affirms Fonterra AA credit rating:

(BusinessDesk) – Fitch Ratings has affirmed Fonterra Cooperative Group’s credit rating, saying its dominance in export markets and fully-integrated business model underpin the dairy company.

Fonterra’s long and short term default ratings were affirmed at AA- and F1+ with a stable outlook, and ratings on its senior unsecured notes, subordinated notes and commercial paper were also left untouched at AA-, A+ and F1+, Fitch said in a statement. The rating agency cited Fonterra’s ability to sell its entire annual production despite price volatility and its market dominance as key rating drivers.

“Volumes and prices at GlobalDairyTrade auctions which comprise mainly New Zealand products rose over the last month despite the August colostridium botulinum scare,” Fitch said. “Fonterra does not take a material amount of price risk as it is able to pass this risk on to Fonterra’s farmer supplier/shareholder base.” . . .

World’s largest drier kicks into gear at Darfield:

The world’s largest milk powder drier at Fonterra’s Darfield site kicked into gear last week producing its first batches of whole milk powder which will be exported to more than 20 markets worldwide including the Middle East, China and Southeast Asia.

Fonterra’s Director Logistics Network, Robert Spurway, said at the peak of the season, the drier will run 24 hours a day, seven days a week. It will produce more than 700 metric tonnes – the equivalent of 45 shipping containers – each day.

“The demand for dairy nutrition around the world, especially for whole milk powder, is still strong. Drier Two will ensure that Fonterra has the capacity to meet this demand and to process ongoing milk growth in Canterbury, the fastest growing dairy region in New Zealand. . .

There’s more to whitebaiting than catching fish Julia Bradshaw at Waiology:

Unlike the rest of New Zealand, on the West Coast the season for catching whitebait starts on 1 September and the build-up has been noticeable during the last week. Distinctive huts have appeared along the sides of rivers, motor-homes are noticeably more common and there are more strollers than usual along the river-banks. They are keeping an eye out for shoals of whitebait, a sign that the season will be a good one.

Catching whitebait has always been an important part of West Coast life. Tangata whenua had sophisticated and clever ways of catching mata (whitebait), all of which were copied by early Pakeha. Scoop nets, pot nets and trenches (stands) in use today can be easily traced back to the ingenious methods used by Maori. . .

Four vying for DairyNZ directorships

Four candidates are vying for two DairyNZ director positions this year, with the results of the election set to be announced at DairyNZ’s annual meeting in Taranaki on Thursday October 17.

Two directors are retiring by rotation and standing for re-election, along with two other new candidates. 

Candidates for the director positions are: 

  • Alister Body (Ashburton) 
  • Kevin Ferris (Te Awamutu) 
  • Barbara Kuriger (New Plymouth) 
  • Tom Walters (Te Puke) . . .

Port staff taken on inspection duties – Tim Fulton:

The Ministry for Primary Industries (MPI) classes the empty shipping containers at Port Chalmers as either Pacific or rest of the world.

The hygiene of the Pacific containers kept everyone on guard but shipments from elsewhere were generally less risky, border clearance regional manager Andrew Simon said.

There would always be times when port workers wanted to inspect a container so it could be moved somewhere else, and it was often then MPI inspectors were busy elsewhere.

“Sometimes the port companies are screaming out for us to come and inspect these things, over weekends and things, and we don’t have staff operating 24/7 at port sides around the country,” Simon said. . .

Akarua Pinot Noir named Champion Wine of Show:

Bannockburn vineyard Akarua has won the Bragato Trophy for Champion Wine of Show and three other trophies at the Romeo Bragato Awards in Blenheim.

Apart from the competition’s top award, Akarua Pinot Noir 2011 also won the Mike Wolter Memorial Trophy Champion Pinot Noir and the Sustainability Trophy.

On top of Akarua’s success with Pinot Noir, a recent addition to their portfolio, Akarua Rosé Brut NV, also won the Sparkling Trophy. . .


Fonterra focus still payout

December 1, 2012

Yesterday was a big day for Fonterra.

Prime Minister John Key opened the company’s new $200m Darfield site.

Shortly before the opening, Fonterra’s units were launched on the stock exchange making  the biggest listing day stag that investors have seen for years.

The non-voting units, which launched at midday today, surged as high as $6.95, a 26 percent stag before closing at $6.85 from an offer price of $5.50. The fund’s turnover was $179.8 million as investors scrambled to get a slice of dairy exporter Fonterra Cooperative Group’s dividend stream.

Turnover in the NZX50 was lower, but substantial, at $175.2 million.

The most comparable float was the December 2011 listing of TradeMe, which rose 6.9 percent on its first day, and was up about 10 percent on its issue price by the end of its first week’s trading, said Andrew Bascand, at Harbour Asset Management.

The fund attracted more trading than the rest of the NZX50 put together and is likely to have been attractive to foreign investors, who took 42 percent of the initial issue of units after Tuesday’s book-build. . .

The price increase amounts to an extra $300,000 in value for the average Fonterra shareholder.

However, in a newsletter to shareholders, chair Sir Henry van der Heyden says the company’s focus will still be on the payout.

TAF was about removing redemption risk and giving farmers some more flexibility but making money from the milk they produce will be of more importance to shareholders than the price of units on the stock exchange.


Rural round-up

August 19, 2012

First product off the line at Fonterra Darfield:

The first bags of whole milk powder have rolled off the production line at Fonterra’s new $200 million manufacturing site near Darfield in Canterbury and are bound for South East Asia, China and the Middle East.

Brent Taylor, our Director of Operations – NZ Milk, says it was smooth running for the new plant, which produced 40 metric tonnes of product in its first full day of operations.

“It has taken less than two years to bring the project together and it is a significant achievement for us and good news for Canterbury and the wider Christchurch rebuild, he says. . .

Tree Harvesting Invention Named New Zealand Winner of the James Dyson Award :

A tree harvesting device has won the New Zealand leg of the twelfth annual James Dyson Award, a product design competition.

Current harvesting methods require return visits to a forest, causing soil erosion and damage to surrounding trees. Nick Ross, an industrial design graduate from Massey University, has devised a solution that cuts trees right from ground level, and feeds them straight into the machine. An extraction process is then engaged to return needles back to the soil for nutrients, while the branches gathered in a separate container can be re-used as an alternative energy fuel. . .

Meanwhile in the asylum – Offsetting Behaviour:

I like to think of New Zealand as being the Outside of the Asylum.

Outside of the Asylum, farmers are free to sell their produce.

Today’s news from inside the asylum: hosting a 10 year old’s birthday party and selling a bit of farm produce at the event
hosted on your farm gets you thousands of dollars in fines
. . .

Gibbston Valley Winery celebrates two special ‘birthdays’

A Central Otago winery celebrating its 25th commercial grape harvest with a black tie dinner next month will also mark a milestone of a different kind.

The Gibbston Valley Winery anniversary dinner event on September 1 will kick start the award-winning winery’s support of national charity Cure Kids, with all proceeds from the night’s auctions going to the charity.

In keeping with that support, the dinner will also celebrate the remarkable story of Cure Kids ambassador and Queenstown resident Sophie Newbold, who celebrates her 18th birthday on September 14. . .

Boot camp to inspire development of New Zealand Inc – Allan Barber:

This week a high powered Boot Camp, attended by a group of key New Zealand agribusiness executives, will take place at Stanford University, California, with facilitation by Professor of Marketing Baba Shiv whose research expertise is in neuroeconomics.

The Boot Camp is the brainchild of Keith Cooper from Silver Fern Farms and John Brakenridge, Chief Executive of NZ Merino, who visited Stanford to discover new ideas on how to market Silere lamb from the two companies’ JV established last year with assistance from the Primary Growth Partnership fund. . .


%d bloggers like this: