Milk­ing it

Volatile ex­port prices for milk pow­der are caus­ing Fon­terra to look more se­ri­ously at some un­usual but prof­itable niches.

New Zealand Listener - - CONTENTS - By Rebecca Howard

Volatile ex­port prices for milk pow­der are caus­ing Fon­terra to look more se­ri­ously at some un­usual niches.

As you slide into your Maserati, take a mo­ment to thank New Zealand dairy farm­ers for the soft­ness of the leather seats. No Maserati? Not to worry. Milk can also be found in cer­e­mo­nial can­dles in the high reaches of Ti­bet, high-end but­tons and the oc­ca­sional vodka mar­tini, not to men­tion a raft of health and phar­ma­ceu­ti­cal prod­ucts.

The bulk of New Zealand’s dairy ex­ports is whole milk pow­der, a com­mod­ity whose highly volatile price has seen farmer in­come soar and then plunge in re­cent years. In a bid to shel­ter its 10,500 farmer share­hold­ers, Fon­terra Co-op­er­a­tive Group is look­ing to squeeze value out of ev­ery drop of milk.

“NZMP, Fon­terra’s dairy ingredients busi­ness, aims to gen­er­ate higher re­turns for the co-op­er­a­tive by mov­ing more milk from core ingredients, such as whole-milk pow­der, into higher-value prod­ucts, such as pro­tein-for­ti­fied ingredients,” says NZMP mar­ket­ing di­rec­tor Gil­lian Mun­nik.

Price volatil­ity can af­fect the dairy giant’s en­tire ex­port port­fo­lio, and

“the added value in some of these prod­ucts is sig­nif­i­cant”, she says. “We are spend­ing quite a lot of our in­no­va­tion fo­cus on how we can do more with these.”

To­day, its fac­to­ries don’t just pro­duce milk pow­ders, but­ter and cheese for ex­port but are also churn­ing out a wide range of other prod­ucts. Re­cent in­vest­ment in plant ca­pac­ity al­lows Fon­terra to shift and chan­nel milk to where the re­turns are the high­est.

Ca­sein – the main pro­tein found in cows’ milk – has found its way across the globe given its high adapt­abil­ity and not just for food. “It’s al­most like the chameleon of the dairy in­gre­di­ent world,” says Mun­nik. “It is prob­a­bly the most ver­sa­tile com­po­nent of milk.” To­day, sports car maker Maserati buys leather for its lux­ury in­te­ri­ors from sup­pli­ers who use Fon­terra’s ca­sein to treat hides; Ital­ian leather mak­ers seek it out for use on de­signer jack­ets and bags. Es­sen­tially a bind­ing agent, ca­sein is found in plas­tics – such as high-end but­tons – paint and

glues, as well as in food such as hot dogs.

Fon­terra’s pro­teins, which in­clude whey pro­tein con­cen­trates, make up about 6-7% of its ex­ports. The co-op­er­a­tive’s to­tal rev­enue was $17.2 bil­lion in the 2016 fi­nan­cial year, when it made 9% more higher-value prod­ucts such as cheese and ca­sein and 7% less of prod­ucts such as milk pow­der, as it chased a more prof­itable prod­uct mix. Its gross mar­gin per tonne on these high­er­value prod­ucts rose 24% to $1348 as a re­sult.

COWS V YAKS

Can­dles and so-called but­ter lamps are an in­trin­sic fea­ture in tem­ples and monas­ter­ies through­out the Hi­malayas, with cer­e­monies lit by end­less rows. Monks have tra­di­tion­ally used can­dles made from yak but­ter, but some have turned to Fon­terra. An­hy­drous milk fat – or AMF – is shipped to Ti­bet in 40-gal­lon drums where it is used in cer­e­mo­nial can­dles. Ac­cord­ing to Fon­terra, monks pre­fer the clean-burn­ing and bet­ter-smelling AMF.

Closer to home, Aus­tralian bou­tique spir­its com­pany Ar­ti­san Spirit Mer­chants (ASM) sought to pro­duce a unique, high­qual­ity, pure, preser­va­tive-free vodka and to source the ingredients turned to New Zealand, in­clud­ing the dairy sec­tor. Its ul­tra-pre­mium vodka, VDKA 6100, is pro­duced in Re­poroa, near Lake Taupo, and is dis­tilled us­ing whey from the Bay of Plenty re­gion.

The whey, which is es­sen­tially the wa­tery part of milk that re­mains af­ter the for­ma­tion of curds, is fer­mented, us­ing a rare strain of yeast, to pro­duce ethanol. Given that most vod­kas are made from pota­toes, grain and grape, this has given the com­pany its key point of dif­fer­ence.

“We strongly be­lieve that whey-based eth- anol has fewer im­pu­ri­ties and less methanol than ethanol made from grapes and grain. Very few vod­kas in the world are made us­ing whey, so it is a unique prod­uct,” says ASM gen­eral man­ager Nick Mann.

“As is the case with VDKA6100, the whey­based ethanol is fur­ther en­hanced when care­fully fil­tered and blended with great wa­ter, such as nat­u­ral New Zealand spring wa­ter.” Vodka can of­ten be harsh, flavour­less and odour­less. VDKA 6100, how­ever, due to its com­po­si­tion from whey, has a much more “in­ter­est­ing and el­e­gant taste, with citrus notes and hints of white pep­per and a won­der­ful lus­cious mouth­feel”.

In New York, VDKA 6100 can be found on the cock­tail lists of some of the hottest bars, clubs and restau­rants in Man­hat­tan. To­day, it is sold in New Zealand (duty free), Aus­tralia, the US and China.

“THE VER­SA­TIL­ITY OF DAIRY”

Milk also plays a role in the med­i­cal world. Phar­ma­ceu­ti­cal-grade lac­tose ex­tracted from New Zealand milk pro­vides a vi­tal in­gre­di­ent that’s found in asthma in­halers, as well as in tablets and cap­sules.

“Only a tiny bit of lac­tose ends up in asthma in­halers, but it does the im­por­tant job of de­liv­er­ing the drug to your lungs in the right dose ev­ery time,” Fon­terra says. “A fine grade of lac­tose re­leases more of the drug, more ef­fec­tively.”

Fon­terra has a joint ven­ture with Dutch dairy com­pany Royal Fries­landCamp­ina. To­gether the two dairy com­pa­nies own DFE Pharma, which pro­duces med­i­cal-grade lac­tose that is found in half of the world’s asthma in­halers.

The “amaz­ing thing is the ver­sa­til­ity of dairy”, says Mun­nik, point­ing to whey crisps in the US and high-pro­tein milk­based gels in Ja­pan as well as milk pro­tein con­cen­trates that help the body to re­cover faster af­ter trauma or ill­ness. “These things all have greater added value.”

Nigel Brunel, di­rec­tor of fi­nan­cial mar­kets at bro­ker­age firm OMF, says, “New Zealand is the whole-milk pow­der cen­tre of the world but we are a price taker. When a bucket of milk comes in, there’s so much stuff in it. They have started to look at it and re­alise it’s more than just turn­ing it into pow­der.”

The whey vodka has a much more “el­e­gant taste, with citrus notes and a won­der­ful lus­cious mouth­feel”.

Clock­wise from above: an­hy­drous milk fat is re­plac­ing yak but­ter in can­dles in Ti­bet; Maserati’s leather in­te­ri­ors are treated with Fon­terra’s ca­sein; lac­tose is used in asthma in­halers; trendy vodka VDKA 6100 is fer­mented from New Zealand whey rather than pota­toes or grain.

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