Infant formula and baby food business Bellamy’s Australia is ramping up demand for organic milk, sealing three new strategic arrangements to draw extra supplies from Tasmania and Victoria.
The company is urging conventional dairy farms to convert to organic milk production.
It is chipping in $5.5 million to contribute to the conversion cost at a Fonterra plant in Victoria so it can process and handle organic milk.
Bellamy’s has amended existing milk supply agreements with Fonterra to begin developing a Tasmanian organic milk pool based on the processor’s Spreyton site, with supplies then sent to the Darnum plant in West Gippsland.
Bellamy’s Organic will take the first 20 million litres a year from the organic milk pool, and will have first right over any additional volume.
A new multi-year agreement will also secure access to organic fresh milk with an affiliate of Australian Consolidated Milk (ACM) at Kyabram in northern Victoria, while Bega Cheese’ Tatura Milk Industries will also become an organic dairy supply base for Bellamy’s.
ACM, which also supplies to Freedom Foods, has been developing its own organic fresh milk pool since 2016.
It will build a new milk processing plant in nearby Girgarre next year capable of processing organic and conventional milk.
Bellamy’s said it wanted to support sustainable farming, improving farmer economics and promoting safe, premium Australian-made organic products.
Fonterra has also noted organic dairy products such as nutritional powders command a premium price with consumers and create high-value returns for the supply chain.
It, too, was keen to work with Tasmanian farmers interested in organic dairying so the organic milk pool could grow.
Bellamy’s growth plans and optimistic outlook for its export markets make a stark change from just 18 months ago when the formula business’ share price had tanked and sales had flat-lined in its key Chinese markets.
The crash followed import regulatory changes by Beijing, which exposed Bellamy’s risky take-or-pay supply contracts with formula makers, creating an oversupply of product.
Remarkably, Bellamy’s made a surprise recovery from near bankruptcy in early 2017, and has returned to popularity with investors and consumers.
Its new multi-year deal with ACM will provide the milk processor with “a secure end customer for its organic milk”, which would allow the family to continue to invest in converting farmers, and thus, provides Bellamy’s guaranteed access to ACM’s organic milk.
Existing minimum manufacturing contract commitments for formula production with Tatura and Fonterra remain unchanged.
Bellamy’s chief executive officer, Andrew Cohen said the move was exciting step forward for the company and the organic dairy industry.
“We hope to improve outcomes for Australian dairy farmers, support the Tasmanian dairy industry, and at the same time take greater control of our supply-chain and cost structure,” he said.
“We believe rising demand for our brand and high quality, premium organic infant formula in Australia, China and emerging Asia can become an important and value-added platform for Australian farmers.”
Growing urbanisation and rising incomes continue to fuel nutritional milk powder sales in emerging markets.
The category is growing at double digit rates year-on-year and now worth almost $70 billion globally.
Meanwhile, the organic dairy market is tracking at 33 per cent growth between 2017 and 2022, according to market research firm Euromonitor.
Fonterra Australia’s managing director, René Dedoncker, said the agreement was a win-win for Tasmanian farmers and the partnership Fonterra and Bellamy’s began in 2015.
“Bellamy’s Organic is a rapidly growing organic nutritionals brand and is an important customer of ours,” he said.
“This is another example of how we’re playing to our strengths in cheese, whey and nutritionals.”
He said Tasmania offered the right conditions to develop a world-class organic dairy ecosystem. “With its high rainfall and developing irrigation scheme, coupled with our agile site at Spreyton, we believe Tasmania is an excellent location to grow a high-quality organic milk pool,” he said.
“The development of an organic milk pool is also a positive for Tasmanian farmers, who will have the opportunity to tap into the premium and stability that organic milk attracts.