Fonterra's added-value plan paying off

18:49, Nov 10 2010

Fonterra's strategy of adding value to other countries' milk to bring home fatter returns to New Zealand has made major strides in the United States, and a successful cheese and yoghurt ingredient manufacturing experiment is now being rolled out in Europe.

Using leased plant and milk supplied from US heavyweight co-operative California Dairies, Fonterra has made a cheddar cheese production breakthrough by applying Kiwi intellectual property from its Palmerston North research centre.

The new products would command premium prices in world food service markets, said Andrei Mikhalevsky, managing director, global ingredients and food services.

The venture has so far cost Fonterra US$7.5 million (NZ$9.6m), mainly to upgrade the ageing plant. Building a new factory would have cost up to US$70m, he said.

The first season's production of the new Cheddar Plus brand was small at about 13,000 tonnes but quickly sold out.

Production of a specialised yoghurt base at the same plant at Los Banos, between Los Angeles and San Francisco, has been similarly successful, though sales had been later starting because of US grading certification requirements.

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"The cheese is basically a cheese ingredient that people would put into sliced cheese for application into the food service, where it might be used for hamburgers or cheddar slices for retail," Mr Mikhalevsky said.

He declined to forecast likely earnings from the new venture, but said Fonterra was aiming for a big slice of the US$19 billion world cheese ingredient market. T

he global market for all cheese is estimated to be worth US$91b.

"We have proved the model. We are not just talking about value-add, we have proved the concept. It's not a dream, it's now a reality."

The hunt is on for plants in Europe.

The Dominion Post