Synlait plant expansion in NZ

China’s Bright Dairy has taken a 51 per cent share in the Synlait Milk Ltd plant in Dunsandel, New Zealand, for NZ$82 million (EUR45.1m). This will enable the plant to double its production capacity to 100,000 metric tons per year and move into the most lucrative segment for exports to China – ingredients for infant formulas. Synlait, 22.5 percent owned by Japan’s Mitsui & Co, will retain a 49 per cent stake and separately keep 100 per cent ownership of its dairy farms.

“Our strategy is all about us becoming a leading supplier of high value premium infant formula, particularly for the Asian market,” notes Synlait chief executive officer John Penno.

Meanwhile, fellow New Zealand dairy giant Fonterra is planning its own NZ$200 million (EUR110m) plant nearby. However, Fonterra will have to keep supplying the Synlait plant. Under Fonterra’s enabling legislation, the Dairy Industry Restructuring Act (DIRA), independent processors can each seek up to 50 million litres of raw milk.

“We don’t believe it is right that Fonterra should be required to supply raw milk to Open Country Dairies, Westland, Tatua, Synlait or New Zealand Dairies when they have their own farmer supply base,” Fonterra managing director of trade Gary Romano notes. “It actually decreases competition.”

A growing middle class seeking western-style foods, and food safety concerns in the wake of the 2008 melamine adulteration scandal have increased Chinese demand for imports of “safe” overseas milk powders. Investors such as Bright Dairy have taken increasing interest in sourcing New Zealand milk powder they can sell in China at a premium.

Fonterra plans to open a mid-Canterbury plant by September 2012 to process up to 2.2 million litres of milk a day – equivalent to the milk flows from 200 farms. Canterbury produces about 15 per cent of New Zealand’s milk for export, with this production growing at a rate of more than five per cent per cent annually.