Dairy Goat Co-op ready to expand
The Dairy Goat Co-operative has begun commissioning its new spray dryer and plans to start using it to process product to market later this month.
The $70 million investment will allow the co-operative to capitalise on the market growth the Waikato business has achieved over the past few years.
The second dryer was a significant project for the Waikato company, the co-operative's chief executive Tony Giles said at the NZ Institute of Primary Industry Management's annual conference in Hamilton.
He credited the co-operative's demand-driven, market-led strategy for that growth, which saw it earn $150 million in revenue and establish itself as a sizeable Waikato and New Zealand exporter.
"We're very confident that this growth will continue," Giles said.
The new dryer sits alongside the co- op's first spray dryer, built in 2003.
The co-op's Hamilton factory includes a dry blend and canning facility, a product development and technical quality market service, and a can- making plant.
It provided control and supply chain integrity and allowed the co-op to manage its quality systems.
"As we have been able to grow, we have been able to get that vertical integration from the farm through to the market," Giles said.
Today it supplied 20 markets, half of which were reasonably sized, including China, he said.
"It's a very rewarding market, but a very challenging market."
Key to the co-op's success is its market-led philosophy. It uses sale expectations to drive milk supply, rather than producing the milk first and selling it later.
The co-op used that philosophy because there was no commodity market for dairy goat milk to fall back on, Giles said.
That model was why the co-op used a controlled milk supply situation called "supply rights" among its farmers.
"That market-led philosophy is a really important part of our industry."
But it had led to the perception that the co-op was a closed industry.
The increased growth in demand for its products meant the co-op had taken on more suppliers - 20 more in the past few years.
That brought the total number of farmers in the co-op to about 70.
It was looking to add between four and five more suppliers every year and there was a waiting list of farmers wanting to join.
That supplier growth would be determined on the level of market growth, Giles said.
The co-op deliberately kept a low profile because it wanted to keep those new markets it had opened to itself.
"We're in no hurry to let the international competition know what we are up to," Giles said.
Its long-term strategy was focused on brands, market and product development and investment in manufacturing facilities.
"Where we have got to now has been the result of many years of development and playing that long game."
It heavily focused on producing infant formula, almost to the point of over-stressing on it, he said.
"We really view ourselves as an infant formula company rather than just a goat milk company."
The co-op also focused on the premium end of the infant formula market.
"We have to be, because goat's milk is a lot more expensive to produce than cow's milk," Giles said.
The co-op's two main customers that bought their product were families of children who were intolerant to cow's milk formula and those who saw goat's milk as the best and most natural formula for their children.
The co-op had led the world in being the first to invent commercial goat milk infant formula. Each market that the co- op had entered, it was always the first to be there. That was both rewarding and challenging, Giles said.
There were "hard yards" that went into any new market, particularly if it was dominated by cow's milk infant formula companies.
"There is a very big barrier to get into these markets, especially when you have to influence health professionals, doctors and people who can be quite conservative," he said.
As a goat milk producer, the co-op had an opportunity to become a niche operator of a different protein source, and it suited the company to go down the path of value-added production.
"It's a hard philosophy and hard objective to follow, but it's suited us as an organisation."
It was also good for their farmers as it provided consistent returns and allowed them to avoid the ups and downs of the commodity cycle.
"We have done it through our own brand strategy, a niche approach, we have tried to be a bit different, value- added and very importantly, that philosophy of being market-led and playing the long game."
Giles had been chief executive for six months, taking over from David Stanley, who had been with the company for 21 years and was instrumental in building up the co-op.
"Our job now is to keep that going," Giles said.
Market development would continue and would be used to underpin growth, he said.
The co-op also had its eye on breaking into the European market.
That was a market in which the co-op had invested heavily, to the point that it had lobbied for the regulations to be changed in the European parliament to make goat milk a legitimate protein source of formula.
That process had taken 10 years and the co-op was now about to launch into those markets.