Fonterra said today it plans to take a 20 per cent stake in Chinese infant food manufacturer Beingmate and will spend $555 million on expanding its milk powder making capacity in New Zealand.
The cooperative said it intended to form a global partnership with Beingmate - with a total investment of $615 million - that would help meet China's growing demand for infant formula.
The partnership would 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.
Fonterra will shortly start the process to issue a partial tender offer to gain up to a 20 per cent stake in Beingmate.
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 will establish a distribution agreement to sell Fonterra's Anmum brand in China, it said.
Fonterra chief executive Theo Spierings said the partnership between two leading dairy nutrition companies will be a game changer that will provide a direct line into the infant formula market in China, which is the biggest growth story in paediatric nutrition in the world.
The cooperative said it would spend $555 million on building a new milk powder drier in the Waikato and on increasing its milk processing capacity in Southland to help meet global demand for dairy products.
Fonterra chief executive Theo Spierings said the investment would but allow for more flexibility to better optimise the cooperative's production capacity.
"Our strategy is to increase earnings by driving more milk volume into higher value categories globally by turning the wheel from commodities to higher-margin products," he said in a statement.
"By creating more options for our New Zealand operations we are better placed to be able to make the product mix that delivers the greatest returns to our farmers and meet the needs of our consumers and customers worldwide," he said.
Approval has been given to build a drier at the Lichfield site in South Waikato capable of processing up to 4.4 million litres per day and similar in size to the world's largest drier at Darfield, in Canterbury, which produces up to 30 tonnes powder an hour.
Three plants will also be installed at the Edendale site in Southland, comprising a milk protein concentrate plant, a reverse osmosis plant, and an anhydrous milk fat plant.
Fonterra has invested more than $1.8 billion to grow processing capacity since 2011.
Dairy prices are 40 per cent below their February peak and are now a touch below their post-2000 average.
Earlier this month, Fonterra cut its forecast 2014/15 farmgate milk price forecast to $6.00 a kg of milksolids from previous forecast of $7.00 a kg. In a separate statement, Fonterra said it would maintain its milkprice forecast of $6.00.
Units in the Fonterra Shareholders Fund last traded at $6.13, up 1c.