Singapore's Olam is confident of getting enough milk supply for its Waikato plant start-up next year. Photo / File
New Zealand's newest milk processing plant, being built in Waikato by Singapore's Olam company, is on track to open next year but the big question is, in a flat to declining milk production market, will it be able to source enough milk?
Industry leader Fonterra, which Olam is entitled under the Dairy Industry Restructuring Act (Dira) to hit up for up to 50 million litres of milk a season at the base farm gate (regulated) milk price, suggests that in this milk environment, more processing capacity creates a surplus of capacity across the industry.
"We welcome competition and innovation in the dairy industry, but if the ability to access Dira milk is influencing entry decisions, then this could result in a less efficient dairy industry that ultimately impacts farmers," a Fonterra spokeswoman said.
Olam is entitled under Dira to lean on Fonterra until it can source its own supply of 30 million litres or more a season.
Olam's Tokoroa venture will be looking to lure farmers in south Waikato now supplying Fonterra, Miraka and Open Country Dairy.
Waikato dairy farmer, former sector leader and Federated Farmers board member Chris Lewis hasn't heard much talk about supplying Olam.
He suggests Waikato farmers are pretty happy right now with their supply companies.
It is contentment cemented by the record high milk prices processors are paying and some hard work by companies, particularly Fonterra, on improving relationships with farmers in a competitive environment for milk, he said.
Lewis also notes Fonterra's reduced share price after a capital restructure will hardly be motivating its farmers to cash up their shares and leave the industry leader.
"If they want suppliers, they're going to have to get out the cheque book."
It's possible there could be sour grapes in the dairy farming community over foreign-owned Olam selling out of Open Country Dairy, where it learned about the New Zealand industry, only to return and set up shop on its own.
Open Country, New Zealand's second largest processor and exporter after Fonterra, is now wholly owned by Motueka's Talley family.
But Olam, an international food company owned by the Mitsubishi Corporation and setting up in Tokoroa under the subsidiary Olam Food Ingredients, doesn't sound worried about getting enough milk supply.
Paul Johnson, manager milk supply New Zealand, said the company had "confirmed agreements with new farmer partners".
"We are continuing initial, and ongoing, confidential discussions with farmers, which are going well.
"We are confident we will secure the supply needed to run our plant profitably.
"Our decision to shift gear from being an investor in the New Zealand dairy sector to building our own new plant reflects that confidence. We know from insights from our global customer base that there is strong and growing demand for high-quality New Zealand-made ingredients."
Asked how many suppliers the plant planned to have on opening day, Johnson said "we are not hard and fast about final supplier numbers".
"It is the milk supply volume that will be the yardstick and that will grow as we grow.
"We are on track with our expectations."
The company said construction was progressing well and on track for opening in June next year, the start of the new dairy season. The plant would be developed in stages, starting with a spray dryer with the capacity for one million litres of milk per day, and capable of producing more than 45,000 tonnes of milk powder a year.
When fully operational, the plant, on an 11.8ha greenfield site, was expected to generate 50 to 60 fulltime jobs, Olam said.
The company has appointed ex-Miraka executive Warren Landles as sustainability manager for the operation.
He said the plant was being designed to maximise renewable energy use, minimise pollution and water use and ensure sustainable management of waste.
The plant would operate a biomass boiler fuelled by sustainably sourced wood fibre.
Landles said the company would support existing farming sustainability efforts and partner with farmers to help them achieve their goals under He Waka Eke Noa, the agriculture industry's blueprint for reducing emissions and building resilience to climate change.
The final report of this industry initiative is due to be released late this month or early June.
"At a farm level, one of our focus areas is methane, so we are looking at tools and technologies that can support farmers to achieve meaningful on-farm emission reductions through methane mitigation," Landles said.
The company would support riparian planting by providing farmers with cost-price native plants grown on the Tokoroa site using treated wastewater from processing operations.
A second phase of construction was planned to expand the range of products manufactured.
Milk powder from Waikato would form part of Olam Food's natural ingredients portfolio which included cocoa, coffee nuts and spices, which could be combined with dairy product for customised foods such as yoghurts, protein bars, ready-to-drink beverages and for use in desserts, bakery, beverages and confectionery, the company said.