Tuesday, 27 February 2018 10:55

Fonterra finally makes a move on a2 milk

Written by  Pam Tipa
Fonterra will talk to its farmer suppliers about a2 milk. Fonterra will talk to its farmer suppliers about a2 milk.

a2 Milk Co has struck a deal with Fonterra that will enable it, over time, to diversify its milk sourcing, processing and manufacturing to meet growing demand for its products, the company says.

It will not affect its current relationship with Synlait, a spokesman told Dairy News.

Fonterra and a2 Milk Company (a2MC) have signed a deal that links the co-op’s global milk pool and supply chain, manufacturing, and sales and distribution with a2MC’s brand strength and capabilities. 

Fonterra will now begin talking to its farmers to source an A2 milk pool for a2MC products in New Zealand. A similar milk pool in Australia will also be developed. 

Fonterra chief executive Theo Spierings and a2MC chief executive Geoffrey Babidge say they expect to grow demand in NZ and offshore for a2MC’s products.

“The partnership is intended to fast-track market growth and this creates opportunity for our farmers to create additional value from their milk,” says Spierings. The a2MC products will fit well in the co-op’s product range, he said.

“Consumers like to have choices and the growth of a2MC branded nutritional powders and fresh milk sales in Australia, for example, show the potential.”

Babidge says the partnership gives a2MC significant medium and long-term opportunities via “multi-site and geographic diversification and new product development”. It will give access to large scale manufacturing performance and competitive terms in a global context, he said.

“The relationship with Fonterra is the ideal model to build brand awareness and deliver a consistent high-quality product to the broadest customer base in this market.

“The opportunity to work together with Fonterra to explore new markets and products is also significant,” Babidge said. The co-op’s resources and capability in many of a2MC’s new priority markets should help speed the distribution of a2MC products. 

Goldman Sachs advised a2MC in negotiating with Fonterra.

An a2MC spokesman told Dairy News that its relationship with Synlait and the new agreement with Fonterra are for separate purposes.

“There’s no question of the arrangement with Fonterra superseding the one with Synlait,” the spokesman said. Synlait has performed outstandingly under the infant formula supply deal the two companies have, he said.

“Synlait [retains] exclusive rights to produce and supply infant formula [for] NZ, Australia and China.”

The new Fonterra partnership:

New Zealand and Australian milk pools will support the partnership. Fonterra will talk to its farmers on the best way to source A2 milk and share the value it will create for farmers. The milk pools will expand over time.

Under a ‘nutritional products manufacturing and supply agreement’ (NPMSA) with a2MC, Fonterra will exclusively supply nutritional milk powder products in bulk and consumer packages for sale in a2MC’s new priority markets in South East Asia and the Middle East. These products will be at Fonterra’s NZ plants and at its nutritionals plant, Darnum, in Victoria.

The two companies plan distribution and sales arrangements to assist a2MC’s entry into its new priority markets in South East Asia and the Middle East. 

Exclusive period to explore a2MC branded butter and cheese, and China-sourced liquid milk for sale in Australia, NZ and China. These would be complementary to Fonterra’s existing product range. 

A jointly owned packaging facility will be explored under the NPMSA to cater for growth.

A New Zealand fresh milk exclusive licence will enable Fonterra to produce, distribute, market and sell a2 Milk fresh milk in NZ. 

First half revenue rises 70%

a2 Milk Company boosted its first-half revenue to $434.7 million, a 70% increase on the same period in the previous year.

Earnings before tax of $143m for the first half to December 31, 2017 were up 123% on the previous year and net profit after tax of $98.5m was 150% ahead.

Basic earnings per share of 13.6 cents were an increase of 147%.

 Growth continued strongly in the infant formula business, and liquid milk sales were again higher in each of the company’s core markets, the company says.

Managing director Geoffrey Babidge says, “Our financial performance reflects the growing strength of our brand, successful in-market growth strategies and the strong performance of our supply chain.”

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