Francis Reid is policy manager for Europe, Russia and the Middle East and he is based in Amsterdam with 45 other colleagues from Fonterra.

Fonterra will soon start employing another 80 people to work as operatives in their new processing factory near Heerenveen in the northern Netherlands. At the moment, the Fonterra staff in Amsterdam are involved with supporting sales into the EU from New Zealand and sourcing ingredients from the EU, including buying product from Irish milk processors.

Whey is the focus

Francis clearly explained the Fonterra focus on Europe is for sourcing whey powder. Whey, the once byproduct of cheesemaking fed to farm pigs, is now the jewel in the crown for higher-margin dairy product and Fonterra wants to exploit its knowledge of whey processing.

Like investments in other countries, Fonterra in Europe has teamed up with local businesses to form joint ventures (JVs) to allow both companies in the JV to grow.

Fonterra started in Saudi in 1994 with a JV with Saudi Dairy to repackage dairy ingredients from New Zealand, and in 2009 the business became 100% Fonterra owned and now processes powder and cheese just north of Bahrain.

Fonterra has other international JVs in the US with Nestlé and Dairy Farmers of America, in South Africa with Clover and in Germany with DFE.

Fonterra says the justification for these JVs is to remain relevant to their consumers and no doubt another part is to reduce the home market’s exposure to China.

China has been sucking in all the whole milk powder (WMP) Fonterra can produce for the last number of years, so producing more and more WMP is the key focus product from its factories in New Zealand.

Fonterra in the Netherlands

So what’s happening in the Netherlands? Essentially, Fonterra has teamed up with a Dutch family-led company, the A-ware Food Group, which specialises in producing premium cheese.

Until now, A-ware was only involved in cutting, wrapping, storing and selling cheese, but they are now taking a first step into processing cheese with this new investment in a processing factory at Heenerveen.

A-ware will source milk from the large Dutch processor Friesland Campina, who are obliged to sell a portion of the milk they collect due to competition laws, but also from local farmers supplying other smaller processors.

A-ware has gone to some local farmers already, signing deals for milk at 1c/l on top of what they are getting already.

In the Netherlands, the scramble for milk to fill new processing ventures is well and truly up and running.

Friesland Campina is building additional capacity that will require another billion litres, mainly processed into powder and cheese.

A-ware is building processing facilities for another one billion litres of milk. Chinese ventures started off as dry blending product and hence it received a Dutch label, but they too are now chasing milk.

Recently, other Dutch dairy traders purchased milk factories and they too are investing in milk dryers. So as you can see, Fonterra are not alone when investing in the Netherlands.

The Fonterra plan

A-ware Food Group will operate a new cheese plant and Fonterra will operate a dairy ingredients plant alongside this. Whey and lactose produced on site will be processed into premium nutritional ingredients to supply Fonterra’s customers throughout Europe and Asia.

Francis Reid said the proposed investment fits well with the strategic priorities of both companies.

“One of the key priorities identified in Fonterra’s strategy refresh was to focus on nutrition for the vulnerable and to promote mobility among ageing populations globally.

“We have substantial intellectual property in the manufacture of functional whey protein ingredients and have been looking for some time for a source of high-quality whey to enable us to commercialise these innovations for our customers around the world. With our New Zealand Milk business driving hard to optimise returns, we are producing more milk powders in New Zealand and therefore need alternative sources of whey to meet growth requirements. We also need more lactose for our global ingredient business. This partnership will give us greater access to both.”

The Heenereveen plant will give Fonterra an even greater footprint in Europe to go alongside its JV with First Milk in the UK and the contract manufacturing agreement in Lithuania.

Questions and answers

  • On Fonterra investing in the Chinese dairy industry: Francis Reid said, “The Chinese government say you are sending us a lot of product, but what are you investing in this country. They say they want to grow internal milk supply, but understand there will always probably be a milk deficit. The Fonterra plan is to produce maybe one billion litres of milk in China in the future from the current position where China produces around 35 billion litres.”
  • What does Fonterra understand by the word sustainability? “We include community, environment, emissions, water quality, energy, etc, but we do also need to demonstrate the business is adding value to community and our free milk in schools campaign is the biggest social program any company has ever completed.
  • Is it likely NZ product into EU will vanish? “Yes and no. We see a healthy trade as two-way. As well as a large exporter, New Zealand is also a major importer – we are importing cheese from Australia, importing dairy ingredients etc. In a bad season for production where EU under-produces, we might have a role and also supply chains are now more integrated and complex. The trend is for less and less into EU due to price convergence on the global export market. If the Chinese can pay more than the French because of tariffs in the EU, then why would we send product to the EU? It is better to send to China.”
  • What has Fonterra learned from the Botulism scare? “The one critical point is there will be another food safety scare and nimbleness of response is the critical factor. We don’t know the full extent of the damage to the company yet as the Danone issue is still rumbling on.
  • Note: The reason for my trip to the Netherlands came about three weeks ago when a group of Dutch farmers, supplying Friesland Campina, visited Ireland. When I met up with them then, they explained they were amazed no foreign milk processor had plans to build here. Close to their farms in the northern Netherlands, Fonterra and two Chinese milk processors were constructing milk processing factories.