NZ Dairy Looks To China For Capital Investment

NEW ZEALAND - Bright Dairy & Food Co Limited of China have taken a 51 per cent stake in New Zealand, Synlait Milk.
calendar icon 19 July 2010
clock icon 3 minute read

Bright Dairy and Food Co Limited has agreed to invest NZ$82 million in the Canterbury-based milk processing company, Synlait Milk Limited, to create a partnership to drive Synlait's value-added export strategy.

Welcoming the partnership, Synlait Milk's Chief Executive Officer, John Penno, says work has already begun on building a second large scale milk powder processing production plant capable of producing high specification formulated milk powders alongside the existing facility at Dunsandel near Christchurch. The plant will be commissioned in time for the 2011/12 season, more than doubling the capacity of the site.

Bright Dairy's Presidentm Dr Benheng Guo, says the investment in Synlait Milk is its first investment in offshore processing facilities.

"In China the market for premium products from New Zealand and Australia is growing rapidly. Synlait Milk will help Bright Dairy establish a market leading position in the infant formula and milk powder category with a planned co-branded range."

Mr Penno concluded: We can now move forward with confidence knowing that we have the support of an investment partner who shares our vision as producer of high quality and specialist milk powders and has the ability to leverage our value proposition in a market of growing significance. Over time we expect an increasing proportion of our product to be exported from New Zealand in consumer packs rather than in bulk sacks ensuring capture of a component of the value chain in New Zealand."

Federated Farmers believes that this partnership has exposed the weakness of New Zealand’s capital markets.

“After last year’s abandonment of an Initial Public Offering, it’s a damming indictment on our capital markets that Synlait couldn’t rely on New Zealand to provide the investment capital necessary to fund its expansion,” says Lachlan McKenzie, Federated Farmers dairy chairperson.

“With a majority of Synlait Limited’s processing arm being bought by Bright Dairy & Food Co Limited, I think New Zealanders should be thankful Fonterra Cooperative Group, Westland Dairy Cooperative and Tatua Cooperative Dairy Company are Kiwi owned by Kiwi farmers.

“Federated Farmers now hopes Synlait Milk will look to work with our local cooperatives to develop the quality end of the Chinese market. New Zealand can only meet a small part of China’s total needs so developing the value end of the market is in our interests.

“In this, Bright Dairy has a huge advantage with its distribution channels and I’d like to extend that same message to Natural Dairy, which in the box seat for CraFarms.

“Yet we have to be realistic that this is a processing investment and that kind of investment is a two-way street, as the number of New Zealand joint ventures in China illustrates. Synlait Limited’s interest in Synlait Milk will reduce down to 49 per cent but Synlait Limited is retaining total control over Synlait Farms.

“While this seemingly creates a clearer separation from Synlait Milk, New Zealand must be the only country in the world, which forces its major exporter to help out its direct competitors.

“Bright Dairy & Food Co Limited will wish to expand and that will demand more milk but under the Dairy Industry Restructuring Act, Fonterra is obligated to supply twenty per cent of Synlait Milk’s needs for the current year.

“While there is talk about Chinese consumer-ready products being produced in Canterbury, the reality is that the Emissions Trading Scheme makes it far cheaper to ship bulk milkpowders up to China for value-add processing there.

“It doesn’t take a rocket scientist to figure out that since milkpowder is lighter and easier to ship than pre-packs, you won’t pay our labour and compliance costs just to produce it here.

“The ETS will simply not add one yuan in China to what comes out of the driers in Canterbury.

“It’s also ironic that it looks like Synlait Milk looks like becoming a subsidiary of a local authority trading enterprise, in this case, the Shanghai municipality,” Mr McKenzie concluded.

TheCattleSite News Desk

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