Fonterra, a2 Milk bury the hatchet

Fonterra Brands New Zealand acting sales director Grant Watson (left) and a2 Milk's chief executive Jayne Hrdlicka are happy the two companies are working together. Photo / File

After being at odds for close to two decades, Fonterra and a2 Milk have joined forces to offer a jointly branded A1-free milk to New Zealand consumers.

Until now, Fonterra has resisted the concept behind a2 Milk, but in February the two companies buried the hatchet and formed a joint venture.

This week they launched their first jointly branded product - fresh milk - in North Island stores.

Most cows carry both A1 and A2 proteins but the a2 Milk Company specialises in A1-free milk from specially selected cows, which it says has health benefits for people who have trouble drinking regular milk.

Until recently, Fonterra has resisted that idea and disputed the science behind it.

Now, the two appear to have kissed and made up.

"The relationship for Fonterra is a great relationship for both of us," a2 Milk's new chief executive Jayne Hrdlicka told the Herald.

"For Fonterra it is a great opportunity to work alongside a very nimble and fast-moving innovative dairy business that has a very different mix of products.

"It complements their portfolio beautifully and for us it creates this phenomenal leverage into big, important markets that would otherwise take us longer to be able to access, so the distribution benefits associated in the relationship are fantastic for a2," said Hrdlicka.

"Together now we will build an A1-free milk pool that will be used for a2 Milk product which will ultimately find its way into a mix of fresh milk and powder and related product - so infant nutrition, infant formula, fresh milk and then ... we will be able to test some other products - cheese and butter ..."

A2 started off as a technology and intellectual property company, selling licences to parties around the world.

But under Hrdlicka's predecessor Geoff Babidge, the model changed to developing the product and building markets on its own account.

That meant buying back the licences it had sold. The one it could not get back was held by Northland's Fresha Foods, whose licence expired last year, so until now the availability of A2 milk in this country has been very limited.

Against that background, it made sense to team up with Fonterra.

"It took the conclusion of that licence for us to be able to distribute fresh milk products in NZ and then of course it make sense to do that in partnership with Fonterra," said Hrdlicka.

Analysts have said the difficulty facing standard milk companies is that promoting A2 milk can potentially detract from the value of regular milk.

Fonterra Brands New Zealand acting sales director Grant Watson said there were two parts to that question.

"One is, we have already a wide range of milk offerings, from extra protein, lactose free to organic, and the current range is very much consumer led so we've listened to the consumers, and that they see the value in A2 milk and that therefore we're responding," he said.

"I think the other thing is that, you know, it was only 20 years ago that all you could buy was effectively full fat or a low fat milk. It just goes to show that going from a variety of two, 20 years ago to 10 today, consumer needs are changing, people are becoming more sophisticated and we have to respond accordingly.

"Whether you think of a category perspective or a product perspective or whether you think of it from a geographical perspective, again there's so much we can bring to the party along with a2 to create mutual value," said Watson. As it stands, the joint venture is being supplied by just one A1-free herd in the Manawatu.

Watson said Fonterra's decision to jump on the bandwagon was led by consumer demand, not science.

"I think the primary lead for us is very much around consumer demand," he said.
"Scientists have looked at it on an ongoing basis but the consumer demand is clear, and has very clearly backed that there's a need for A2 so that's the leading factor for us."

So is it a matter of letting bygones be bygones?

"Look, I can't speak to the history but I can say that both the a2 Milk Corporation and Fonterra feel very, very positive about the relationship we now have," said Watson.

"There are so many positive opportunities in that product space and geographically and we both bring a lot to the table.

"We are very much looking to the future."