A $9.9 million government loan will help Westland Milk Products reduce its dependency on bulk dairy commodities, chief executive Toni Brendish said.
Regional Economic Development Minister Shane Jones said the interest-bearing, repayable loan from the Provincial Growth Fund will support the development of segregation facilities at the co-operative's Hokitika site, enabling Westland Milk Products to collect and process different types of milk products, such as A2 milk and colostrum.
The $22m plant is part of the company's five-year strategy and Brendish told BusinessDesk the remainder will be funded from "our normal, ongoing capex."
"Generally, you would fund capex out of depreciation. That creates a lump sum of money that we can put into various forms of capex. The balance will come from that."
She said the government's loan makes it possible to bring this particular project forward and "therefore it brings the investment and return opportunities for Westland and the West Coast forward". The plant will be operating in time for the 2019-2020 season.
Paul Goldsmith, National party spokesman for economic and regional development, said the funds were "a soft loan for Westland Milk Products... at a rate no bank was willing to offer".
He warned that the government and taxpayers "shouldn't be taking on the role of a bank, especially one that is directly controlled by ministers."
In its annual report, Westland signaled the need for access to "new and increased capital" in order to create value for its farmer shareholders and said it was focused on producing high-value, segregated products throughout the season.
Currently, it can produce some segregated product but during peak seasonal milk production the existing plant capacity forces it to process low-value, bulk commodities just to get the milk volume through.
The cooperative is currently undertaking a capital structure review and will give shareholders a progress report at the annual general meeting on December 5.
"We simply can't compete in the bulk dairy commodities arena where we have little influence or control over the vagaries of the global dairy trade, and a reduced ability to ride out its highs and lows," Brendish said.
"It makes sense for us to focus on low-volume, segregated, high-value products that are far less susceptible to the cycles of the global dairy trade market. There is growing demand from customers prepared to pay premium prices for bespoke products that meet their, and their consumers', particular needs," she added.
While the plant is being built to take two products initially in the future it will be able to process liquid milk from sheep and goats and even plant-based milk, she said.
Along with the funding for Westland Milk, Prime Minister Jacinda Ardern also announced the Provincial Growth Fund would provide $87.5m for West Coast tourism, $32.8m for extending ultra-fast broadband and mobile coverage in the region, and $10m for a garnet mining project at Ruatapu.