Board partners big cheese

Agricultural Editor PHILIPPA STEVENSON looks at a partnership that will see the Dairy Board getting a bigger slice of the US market.

The Dairy Board has formed a second partnership with the world's third-largest dairy company, Dairy Farmers of America, giving it greater access to the protected but lucrative United States cheese market.

The move follows last month's plan to form the first transtasman dairy company with Australia's second-largest dairy company, Bonlac Foods, as the board pursues the industry's global player strategy in place of the mega co-op of the exporter and manufacturing companies which was to take the role.

The plan is to grow the New Zealand-based business rapidly through mergers, alliances and increased use of non-New Zealand product.

The board, with $7 billion turnover, and Dairy Farmers of America, with $14 billion, already have a joint venture supplying hard, grating cheese to the US, which has the world's largest and most sophisticated food processing industry.

Board chief executive Warren Larsen said the success of the first joint venture, now two years old, led to the new business, DairiConcepts.

It will manufacture and market cheese and dairy ingredients and lift the board's turnover in the US by $150 million to $1.3 billion.

More moves, particularly in fractionated protein products, were likely in the US before the end of the year, he said.

The US consumes four million tonnes of cheese a year, but New Zealand has a quota of only 22,000 tonnes.

Mr Larsen said last year the board exported 32,000 tonnes of cheese to the US, but at a cost of $1022 for each tonne over the quota.

"Bringing our cheese in there is not a runner," he said.

The board had an eight-year-old US-based venture, NZMP Key Ingredients, which produces flavouring to make fresh cheese taste like matured product.

DairiConcepts would combine this cheese technology operation with Dairy Farmers' manufacturing and marketing resources, Mr Larsen said.

Profits from the joint venture would return to New Zealand and be paid to farmer shareholders as part of their payout for milksolids, he said.

The mega co-op concept included plans to unbundle returns to farmers to ensure they did not get the wrong production signals, but Mr Larsen said the effect on payout from the new joint venture would be minor.

"In my view, out of the total turnover of nearly $8 billion, this is a very small amount. I don't see it causing any significant distortion, and it's also been derived from their existing cheese business," he said.

The board was implementing the industry strategy.

"That's what the industry signed off on and as far as we are concerned we are full steam ahead."

Dairy Farmers of America was formed by a merger of four dairy co-operatives three years ago in a move some suggested could have been a model for the New Zealand industry's mega-merger plan.

It is the largest US dairy co-operative.

It has 25,000 members in 45 states, and 33 plants which produce about a quarter of the US milk supply.

To better compete with larger food manufacturers, it has sought strength in value-added products and joint ventures to distribute its milk to wider regions.