TPP II is perfect timing for Fonterra

31 Jan, 2018 01:54 PM
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These investments support our aim to secure positive returns back to our farmers ...

The timing of a breakthrough on the Trans-Pacific Partnership (TPP) couldn't be better for Fonterra as it moves to double the size of its flagship cheese plant in northern Victoria.

The TPP is expected to deliver a boost in cheese exports to Japan at a time when Fonterra is already reacting to growing demand.

Fonterra is expanding its Stanhope plant, recently rebuilt after a fire three years ago, as part of $165 million in capital expenditure to boost production across its Victorian and Tasmanian factory network.

The latest upgrade will provide 500m litres of additional capacity, plus $35m for a range of annual site improvements as part of its regular capital investment plan in Australia.

The staged elimination or lowering of tariffs under the TPP will be welcome by Japanese who have taken a shine to cheese made from Australia's largely grass-fed dairy herd.

Fonterra Australia managing director, Rene Dedoncker, said customers wanted trusted supply options out of Australia, especially for products like cheese, whey and nutritional powders.

In the case of Japan, one major customer will only accept cheese from the company's Wynyard plant in Tasmania.

Australian agriculture's reaction to the revived TPP was dominated by the prospect of greater opportunities in the lucrative Japanese market over and above those created by the Japan-Australia Economic Partnership Agreement.

However, National Farmers' Federation chief executive, Tony Mahar, said Australian producers would not have it all their own way in export and domestic markets given the make-up of the TPP.

"While Japan is a lucrative opportunity, Canada, New Zealand and Chile are all big agriculture producers if not large exporters," he said.

"We understand trade is a two-way street and we're not afraid of competition."

Fonterra’s latest investment splash was first signalled last November by the New Zealand-based dairy co-operative’s chief executive officer, Theo Spierings.

What’s Fonterra’s planning?

The spending includes the $125m expansion of the Stanhope cheese facility in northern Victoria, and about $12m in Tasmania to expand the Wynyard cheese plant and increase lactose processing capacity at Spreyton, among other work.

The Wynyard investment will support an annual increase in cheddar cheese production by around 3,900 tonnes and increase the daily milk volumes processed from 1.3m litres to 1.5m.

A further $7m expansion is planned at the Darnum nutritionals plant in Gippsland, plus installation of two robotic palletisers in Bayswater in eastern Victoria to improve efficiency

In the Western District $13.5m will be allocated to various projects at Cobden, Fonterra’s largest plant in Australia, and $8.6m at Dennington.

Robotic palletisers and improvements to the butter plant producing the Western Star brand will be part of the Cobden upgrade, while a new 25 kilogram packing line for nutritional powders and efficiency improvements is earmarked for Dennington.

“We have a clear strategy that is delivering sustainable returns,” Mr Dedoncker said.

“To create value, we need to invest to stay ahead of the demand curve.

“These investments support our aim to secure positive returns back to our farmers on both sides of the Tasman.”

Fonterra would play to its strengths in cheese, whey, nutritionals, and butter, increasing production capacity to meet rising domestic and global demand.

More milk needed

But filling its expanded capacity would mean securing more supply.

“Our Australian milk pool has grown by 400m litres this season, and with this new investment we plan to grow our milk further which we expect will come through growth from our existing farmers who wish to grow,” Mr Dedoncker said.

He also expected to capture more milk from new suppliers joining Fonterra.

Fonterra’s Australian milk intake now totals 2 billion litres in Victoria and Tasmania.

The Stanhope investment largely focuses on expanding the site’s cheese making capacity, and doubling daily milk volumes it can process.

The investment will increase cheese production by a further 35,000 tonnes for a range of cheeses including cheddar and mozzarella.

Stanhope currently produces up to 45,000 metric tonnes of product including cheddar, mozzarella, gouda, parmesan, pecorino, romano and ricotta.

In total, the capacity investments will create around 36 jobs, plus construction employment during the development phase.

Fonterra also recently signed on 15 drivers after investing more than $8 million in 14 truck and trailer units in Victoria and Tasmania.

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