Dairy industry booms

The dairy industry is gearing up for increased demand from Asian customers, with more than $1b in capital projects underway or on the drawing board. Photo / NZ Herald

Fonterra and other milk companies investing big as export value continues to grow.

Capital projects worth more than $1 billion are either under way or on the drawing board as the dairy industry gears up for increased demand from Asia for our milk powder, cheese, UHT milk and baby formula.

At Waitoa, in Waikato, Fonterra has started building a $126 million UHT (ultra heat treated) plant to meet increased demand overseas.

Chairman John Wilson said Fonterra had historically been under-represented in UHT.

In a recent interview, he said proposals for new UHT plant had come before the board every two or three years over the last 10 to 15 years.

"It's only been in the last two years that the market has changed so dramatically that you have got enough margin to be able to drive this kind of investment," he said.

Elsewhere, Fonterra is spending up large. The co-operative will pay about $30 million on an extension of its export cream-cheese manufacturing operation at Te Rapa.

Phase two of Fonterra's $550 million new plant at Darfield, near Christchurch, is being built to deal with the extra milk supply coming on stream from the province, which has experienced explosive growth in milk production in recent years.

"Darfield Two" involves the construction of a $300 million drier for the conversion of milk into powder. Upon completion, Darfield Two will allow the site to process an additional 4.4 million litres, on top of the 2.4 million litres the first drier puts through daily.

Fonterra is also looking at expanding its already substantial Pahiatua plant in the northern Wairarapa - also driven by increasing milk supply.

A decision on Pahiatua will be made in the next financial year. If it goes ahead, the expansion will involve construction of another Darfield-sized drier, worth around $250 million.

At the other end of the scale, the tiny Tatuanui-based co-operative, Tatua Co-operative Dairy Co, is evaluating building a $50 million specialty products drier. A decision is expected by year's end.

"People are looking at the demand going forward - particularly out of the Asian region - and I think it's likely to continue to be pretty strong," said Paul McGilvary, chief executive at Tatua. "As the economic performance of some of the Asian economies rise, almost the first thing that they do is feed their children better - and milk is a key part of that."

Westland Milk, the second biggest dairy co-operative after Fonterra, is looking at its first incursion into manufacturing across the main divide with a $20 million nutritional products plant pencilled in for Rolleston, near Christchurch. Westland has resource consent for the project, but the board is yet to sign off on it.

The Taupo-based, Maori-controlled dairy company, Miraka (which has been going for two years) will spend about $25 million on a facility at its site at Mokai for the supply of UHT to Shanghai Pengxin - the company that bought the Crafar farms in the central North Island.

Miraka is expected to start UHT production from early 2014.

In Canterbury, Synlait Milk last year completed a $100 million infant formula plant and is now looking at building extra warehousing.

Foreign investors also have big capital expenditure plans for the dairy sector.

China has Overseas Investment Office approval to build a $212 million processing plant in Pokeno, 50km south of Auckland. Yashili does not plan to source milk directly from farmers.

In addition, Yili - China's largest dairy company - will spend $214 million building an infant formula plant in South Canterbury in a deal that will see it take over Oceania Dairy Group.