Global processor breaks into South Island

Inner Mongolia Yili Industrial Group wasted no time sending contractors onto the 38ha site alongside SH1 at Glenavy, South Canterbury following the Overseas Investment Office March 28 clearance of its $214m development.

The OIO decision summary says Yili plans to “construct a milk processing plant… to produce base powder using various local suppliers. The base powder will be exported to China and used in the production of infant milk formula.”

It will be the third large milk processing plant in South Canterbury, and the fifth in the wider region – possibly sixth if Westland decides to build at Rolleston.

Reaction among local farmers is mixed. Unsurprisingly, Aad and Wilma van Leeuwen, vendors of the site to Oceania Dairy, and in turn to Yili, are pleased the development is finally going ahead.

“It’s a major for South Canterbury,” he told Dairy News. “I don’t think a lot of people realise what’s happening here. Yili are a major player in world dairy markets.”

Van Leeuwen was instrumental in the conversion of the Vegetable Processors’ site, 18km to the north at Studholme, to a dairy factory in 2007. The resulting business, New Zealand Dairies, ended up 100% owned by Russia’s Nutritek after falling into financial difficulties during construction. In May last year NZDL went into receivership and Fonterra bought the site.

Van Leeuwen says competition for Fonterra is a good thing and with Synlait looking to consolidate supply closer to its factory at Dunsandel, central Canterbury, Yili will give dairy farmers in the far south of the province, and North Otago, another option. “The timing’s perfect really.”

Currently 80% of the milk from van Leeuwen’s 12,000 cows goes to Synlait, the balance to Fonterra. If all their 4.5m kg of milksolids went to Yili, it could be close to a quarter of the plant’s initial requirement, they believe.

“Now they’ve started building and have people on the ground we can start to talk turkey.”

The van Leeuwens say they’ll be looking to form a suppliers group to negotiate with the Chinese dairy company, as they did with NZDL.

Other farmers in the area have reservations about the competition for Fonterra. “There are pluses and minuses,” Fonterra-supplier Robert Smith says.

He won’t be switching supply from his current 2000 cows to Yili, but if he were to develop another property to dairy he’d consider if for the new milk. “You’d have to look at it very seriously because of the capital involved in supplying Fonterra.”

His reservation is whether New Zealand dairying as a whole should be diluting Fonterra’s strength, not to mention Fonterra’s obligation to supply start-up competitors with 50mL of raw milk/year for their first three years.

No one from Yili was available for comment about the development last week but van Leeuwen says he understands the plan is for a 10t/hour, 19m kgMS/year dryer initially, with expansion to 30t/hour capacity if the milk becomes available.

Fonterra’s high share price will make supplying Yili an attractive option for conversions and/or farmers looking to release capital, he believes, and with returns on Fonterra units way above most nations’ interest rates the cooperative’s share value is unlikely to fall. “[Fonterra] says it’ll be $5 by Christmas but I can’t see it.”

Paul Park, managing director of Oceania Dairy, says he understands Yili’s plan is for a slightly bigger factory than the one Oceania outlined in obtaining resource consents for the site, but as it will be capable of producing infant formula, with imported ingredients added to the milk, the intake and waste output will likely be similar.