Fonterra has announced a major partnership with a Chinese company and investment to boost its production capacity in New Zealand, collectively worth nearly $1.2 billion.
Fonterra and Chinese infant food manufacturer Beingmate are forming a global partnership they say will help meet China's growing demand for infant formula.
The partnership will create a global supply chain from the farm gate direct to China's consumers, using Fonterra milk and its manufacturing sites here and in Australia, and Europe, Fonterra said in a statement.
The dairy giant also announced a $555 million investment to boost its local production capacity, and said it would maintain its farmgate milk price forecast for this season at $6/kg of milk solids, despite a drop in dairy prices.
The Beingmate partnership, which will lift the volume and value of Fonterra's ingredients and branded products exported to China, will take place in two phases.
First, Fonterra will issue a $615 million partial tender offer to gain up to a 20 per cent stake in Beingmate.
Following this, and the necessary regulatory approval, Fonterra and Beingmate will set up a joint venture to buy Fonterra's Darnum plant in Australia and establish a distribution agreement to sell Fonterra's Anmum brand in China.
"We will also work with Beingmate to evaluate mutual investments in dairy farms in China," Fonterra chief executive Theo Spierings said.
The partnership would be a "game changer" that would provide a direct line to the infant-formula market in China, which he described as the biggest growth story in paediatric nutrition in the world.
To help meet global demand, Fonterra would also build a large high-efficiency milk powder dryer at Lichfield in South Waikato and add three processing plants at its Edendale site in Southland to increase production.
Spierrings said this investment would not only boost the co-operative's processing capability but allow for more flexibility to optimise production.
Federated Farmers dairy chairman Andrew Hoggard said having the option of extra processing meant milk would be put to the most valuable use. Farmers would be less likely to lose on the milk payout, as they potentially did last season.
"There will be no butter or milk lakes, and there will be construction jobs in the regions," he said.
Fonterra chief financial officer Lukas Paravicini said Beingmate could look to invest in farms in New Zealand. "They have their own farms and they might be interested in collaborating with us in our farms in future.