Next wave: Tatua bent on keeping ideas flowing

By PHILIPPA STEVENSON agricultural editor

Tatua dairy company is fizzing - just like the aerosol cream-in-a-can that launched the small Waikato dairy co-op on a course of adding value to dairy products more than 20 years ago.

The proposal for its giant industry cousins to merge into a mammoth Global Dairy Co - possibly by June 1 - means Tatua again faces the welcome prospect of being released from the restraints of regulation that forces all dairy exports through the Dairy Board.

The single-factory company was bitterly disappointed when an earlier plan for the mega-merger of the board, Kiwi Dairies and New Zealand Dairy Group came to nothing last September.

With those companies arguing strongly that large size is vital to compete in the international markets the question arises as to why a company of Tatua's modest dimensions thinks it can do well in the rough and tumble of global trade.

In the New Zealand context, Tatua is not that small a company. With turnover of $75.6 million and assets of $42 million it ranks at 156 among the country's top 200 companies. It employs 145 staff at its plant east of Morrinsville and exports to around 24 countries.

It is only up against its neighbour, Dairy Group - the industry's largest company - and the slightly smaller Kiwi that Tatua's size pales.

Tatua has 138 farmer shareholders providing 0.8 per cent of the nation's milk supply from a catchment just 16km from border to border.

GlobalCo would have more than 13,000 shareholders producing 98 per cent of national milk supply from Northland to Southland. GlobalCo's assets would be worth about $7.5 billion and it would have around 35 per cent of international dairy trade.

Tatua, established 87 years ago, has resisted all attempts to succumb to the industry merger juggernaut and, says its chief executive of six years, Mike Matthews, it revels in being known as feisty and independent.

It also relishes the fact that, year after year, it rewards its shareholders with the top industry payout.

Dr Matthews, one of four people within the company, including chairman Alan Frampton, with a doctorate, says the company's aggressive investment programme over the past 20 years provided the platform on which Tatua would build.

With some pride, Dr Matthews turns the table on comparisons. The company spends $4 million a year on capital upgrades, and its investment over the past eight years per litre of milk supplied has been double Dairy Group's, he says.

He points to a high-tech analytical Machine in the on-site laboratory, used to check the purity of one of the company's high-returning protein extracts, lactoferrin. The $120,000 investment is the equivalent of Dairy Group spending $7 million.

Dr Matthews says Tatua's early records show that its reputation for being fiercely independent goes back a long way.

"It's something that has been a feature, in the psyche of the Tatua people going back for decades, to the time of the First World War. They've always had this sense of themselves being unified, determined and at the same time very openminded about what the world has in store for them.

"You can't do the sorts of things this company does unless there is considerable courage on the part of the directors and shareholders. They've got to be prepared to invest."

More recently, in the late 1970s, the directors and management could see that a small company was not going to be able to compete with the big players' economy of scale and would not survive making the basic products of milkpowder, cheese, butter and casein.

The chief executive at the time, Neil Dewdney - now a director of the company - challenged staff to come up with new products. The result was the manufacture of aerosol cream, which began in 1979.

Dr Matthews says the company learned a huge amount from the first foray into an added-value product, including how to deal with agents, export licences, stock funding and management, and price positioning.

"All manner of activities needed to support a truly standalone business had their roots way back then."

Aerosol cream manufacturing provided the basis of a new consumer and food service products division within the company, Tatua Foods.

It now provides about one-third of total company turnover, with $23 million worth of sales a year from a product range which also includes bag-in-box products such as milkshake and ice cream sundae mixes, cheese sauces, and whipping creams done in large tonnages for institutional use here and overseas.

About 18 months ago, when the Dairy Board's Australian subsidiary, Mainland Foodservice, wanted to develop a sprayable butter product, it turned to Tatua.

Anchor butter oil mist was launched to the restaurant trade across the Tasman in March last year with some success, and more recently Tatua unveiled the product here, under its Farmer's Pride brand.

Tatua Foods also runs a consumer beverage business, consisting mostly of the sub-licensed Cadbury brand of five flavours of chocolate milk which has been marketed by Frucor for about four years.

Dr Matthews says the company is keen to expand its Cadbury-brand products into Australia and Asia.

For many years, the company has processed casein from skim milk for the Dairy Board. Since the early 1990s it has expanded the range of valuable extracted milk proteins under the banner of Tatua Nutritionals, a division now with an annual turnover of $50 million.

Protein chemist Barry Richardson, who joined Tatua in 1991, is responsible for the nutritional products sales including the biologically active compounds lactoferrin and lactoperoxidase. Tatua is now one of the world's largest manufacturers of the two naturally occurring proteins, known as LF and LP.

The high-tech, high-priced products which are used in sports drinks and infant formulas and are known to boost people's immune systems are produced by the tonne and sold by the kilogram, not the hundreds of tonnes normally associated with the dairy industry.

It takes about 10,000 tonnes of milk to produce one tonne of LF and a quarter of a tonne of LP.

Dr Matthews says another Tatua success story is enzyme-treated proteins, or hydrolysates. The company is now also one of the world's largest manufacturers of the dairy-based product.

Its competitors in the nutritional food field include a Dutch company, DMV, and one of the world's biggest dairy companies, Arla Foods.

"We certainly don't have the field to ourselves," says Dr Matthews.

He says customers choose Tatua because "we make a product of excellent quality, it's very pure and clean, and fits the technical definition closely. Our delivery record is very strong. So we are recognised for having a very high-quality product which we can deliver on time wherever in the world they want it delivered, and we also know how to service it.

"If they have questions, if they need assistance, we are prepared to provide that for them and go round the world as often as required to promote and service the business."

The technical support required by the products is one reason for the company's relatively high rate of staff with doctorates.

A constantly globetrotting Dr Richardson was out of the country yet again this week, visiting clients in Asia.

"If you are going to be in that sort of [high-tech] business, you've got to speak the [technical] language and understand the science behind it," says Dr Matthews.

Tatua requires only 20 per cent of the cream its farmers produce; 80 per cent is processed at rival Dairy Group's Te Rapa factory which, in the combative dairy industry, could be something of an Achilles' heel for Tatua. However, the company has made a virtue of a potential risk.

Tatua farmers have the only herds fully certified by the US Food and Drug Administration as TB-free. That makes their cream the only type suitable to fill New Zealand's quota of 6600 tonnes of frozen product into the US each year.

"We look upon it as a win-win situation," says Dr Matthews. "They [the Dairy Board] need the cream to meet that market opportunity. We've got the cream to fit the need."

Unlike other dairy factories which can have an annual, mid-year shutdown, Tatua operates year-round. Many of its products do not require milk at all, or are based on raw material obtained elsewhere.

"We are a foods business, in a sense, the same way a Cerebos Greggs might operate," says Dr Matthews.

Milkfat in aerosol butter mist is not from Tatua cows. It is bought in "and we work up the value from the raw material."

Many of the hydrolysates are also made from raw material bought elsewhere.

"We are adding value by operating a large part of our business, not as a milk processor but as a food manufacturing business," he says.

"Our strategy has been to expand our company profit by such activities, and then spread it across a relatively stable milk supply base."

Dr Matthews says deregulation could not come soon enough for a Tatua feisty as ever.

"GlobalCo wants to close the gaps on us [but] we're not stopping developing ... We'll see what happens."