Carbery's investment in global non-dairy company insulates core business

If you ask any farmer why the west Cork co-ops are nearly always top of the Milk League and returning very good milk prices to farmers you will get a range of answers. They will vary from processing consolidation in Ballineen, good product mix with cheese and whey key products, and businesses and investments outside of the dairy business providing returns for the benefit of Carbery shareholders. One of the non-dairy businesses that Carbery owns is called Synergy.

When Carbery sent an invitation to join a ministerial tour of the Synergy headquarters near Chicago they didn’t have to ask twice. Synergy Chicago is a flavours and ingredients business and the boss in Chicago is Rod Sowders. Rod is with Synergy since 2003 and he leads a team of researchers in the US that work with thousands of different ingredients and flavours.

Synergy provides solutions to global food and drink companies that want to make new flavours for beverages or food. Everything from developing a new whiskey flavour to creating a new smokey bacon taste for crisps is part of the business.

What makes the money for Synergy?

To use a practical example – if a food or drinks company wants to put a vanilla flavour into a new ice cream or a new soft drink, it will come to Synergy and ask them to develop a unique flavour. The company asking for the solution signs a non-disclosure form for the ingredients included in the flavour so they can’t sell it on to anyone else.

Synergy gets paid for the unique flavour and that’s its intellectual property (IP) so to speak. Remember there are thousands of different formulas of vanilla depending on where it is sourced, how much is added, what else is included with it, etc. Synergy sources the raw ingredients, mixes the flavours and then sells the end product to the food or drinks company. Synergy products end up in many consumer formats, including beverages, baking, nutritional products, infant formula and sports nutrition.

Why did Carbery invest in Synergy?

The main reason is because of the strategic links with another part of the Carbery business – dairy ingredients. During a strategic review over 20 years ago, Carbery decided that its involvement in the dairy ingredients business was limited due to the volume of milk it was processing so an investment in other ingredients and flavours would be worthwhile.

The thinking was that if the company was working with clients in dairy ingredients, it could easily work with them on other non-dairy ingredients.

Once a professional relationship was developed, extra business could be developed. Through a series of acquisitions, Carbery has developed a foothold in this new business.

John Holland has been operations director with Carbery since the beginning of the flavour ingredient venture.

John was part of the team that acquired the first business in this area for Carbery; the company has subsequently made four more acquisitions in the US.

Synergy has international operations in High Wycombe in England and Bangkok in Thailand. The other US locations are in Rochester, New York, and Hamilton, Ohio.

In terms of the interaction between Carbery and Synergy, Carbery CEO Dan McSweeney said: “There is significant interaction between the marketing and technical teams sharing knowledge on core technologies.

New applications for flavour technologies in dairy are adding value to dairy ingredients. Great taste and effective delivery of functional benefits are key to commercial success of nutrition products.”

No matter how good the product is for you, people won’t buy and eat it unless it tastes good.

Carbery has a Sports Nutrition company called Kinetica which makes whey protein-based products and drinks, and Dan said the Synergy business in the US gives the Kinetica company great credibility when working with new customers.

Synergy Chicago is located at 1500 Synergy Drive Wauconda and was built in 2011/12. It is a 145,000 square foot manufacturing warehouse on 15 acres.

The Synergy business in Chicago is the main innovation centre for Synergy’s US business, so there are laboratories for flavour creation, development, demonstration, sensory testing and pilot plant facilities. There are manufacturing capabilities for liquid and dried compounds, vanilla extraction expertise and extraction facilities for different coffee and tea products.

Synergy Chicago has a dedicated team of professionals qualified to PhD level transforming raw materials into concentrated essences and extracts.

In one area of the factory we saw pilot spray drying facilities where very small quantities of product can be manufactured.

Dairy farmers often hear of the 30t/hour powder driers in New Zealand – these driers are on the other end of the scale at 50kg per hour. However, each is self-contained so that a strawberry-flavoured product could be in one drier while an apple-flavoured product was being processed in the other.

Another area of the facility was dedicated to dry blending. Here, other flavour components are blended and at the moment the facility is extremely busy. We walked into the flavours hall and you could see all the various flavours racked up and stored safely.

Some of the raw materials could cost thousands of dollars per kilogramme and there are over 2,500 raw materials approved so you can imagine the logistical and storage challenges. One raw material used a lot is vanilla, which is sourced primarily from Madagascar. Madagascar is an island in the western Indian Ocean about 270 miles off the east coast of South Africa. This shows the challenge involved in sourcing raw materials and each year you are dependent on weather, transport, crop yields.

Expensive

One researcher at Synergy said vanilla is the second most expensive spice in the world behind Saffron. He explained the very long and labour-intensive process of vanilla extraction.

Out of 150 species, only three produce vanilla beans. Flowers grow on the vanilla vine but flowers don’t pollinate themselves, so a worker has to go and pollinate each flower by hand. Once taken off the vine, it has to be cured for six to eight months.

Raw vanilla beans are odourless, so they are blanched in boiling water and then placed on mats in the sun during the day and then rolled up into what are called ‘sweat boxes’ during the night for months.

Once fully cured they are then stored for three months. The whole curing process can take up to two years. Once cured, it will have that rich vanilla flavour. About 85% of vanilla beans come from Madagascar, but vanilla flavours have been developed in Indonesia. This vanilla will have a different flavour because it is cured differently and grown at a different altitude, etc.

Food companies that have developed award-winning brands and products will be slow to change flavours unless they taste exactly the same or consumers will very quickly respond.

Minister’s comments

Speaking at the Synergy event in Chicago, Minister for Agriculture Simon Coveney said: “I’m very proud to see an Irish group of dairy co-ops develop businesses that add value and insulate core businesses.

‘‘Carbery were willing to take the risk and got the backing of west Cork dairy farmers to make it happen. So many farmers don’t know or realise that Carbery have so many people employed in Thailand, the UK or the US as well as financially supporting family farms in west Cork.

‘‘We want to make Ireland synononous with good food and it is that reputation that will get us into the emerging markets like China etc. I congratulate Carbery on their success here to date,” the Minister said.

Comment: Top work by Cork co-ops

The Carbery business in the US looked to be run to a very high standard and staff at the facility were knowledgeable and well qualified for the detailed work extracting different flavours and making new and very different tastes.

It is a credit to Carbery to have the foresight and capability to get involved in this rapidly growing business. The Chicago business has grown from employing 27 people to over 200 in the last number of years. To be able to diversify the core Carbery business away from dairy only but yet to have a working relationship with the dairy ingredients business is very worthwhile.

The challenge for Carbery and Synergy is to remain relevant in a fast-changing market. Some recent market research suggests total turnover is over $25bn. It is a concentrated and competitive industry. Consolidation has intensified in recent years as world leaders such as Givaudan, Symrise and Firmenich get bigger and bigger and reportedly now hold almost 50% of the world’s flavour business. The business seems to be moving towards players that have total product capability of which flavour is one part. Carbery doesn’t disclose any financial figures for the Synergy business. My sources suggest that the Synergy turnover is not in the same league as the turnover of some of the top 10 global flavour companies.

Synergy is a small player in a sea of giants but who is to say it can’t compete or cut out a niche for itself? It is doing fine returning a good milk price to dairy farmers in West Cork, so Synergy can rest assured it is in capable hands.

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