Fonterra embraces a2 Milk deal
A deal with dairy giant Fonterra means The a2 Milk Company’s fresh products will become more available in New Zealand and Australian shops.
Fonterra has finally jumped on the A2 milk bandwagon as its smaller rival has just announced one of its strongest profits – sending its share price to a record high.
Production of A1- or A2-type milk depends on a cow’s genetics, and research indicates A2 might be healthier for people who are susceptible to diabetes, heart disease, autism, schizophrenia and Crohn’s disease.
The a2 Milk Company managing director Geoff Babidge and Fonterra chief executive Theo Spierings said the strategic relationship included access to Fonterra’s global milk pool and supply chain, manufacturing, sales and distribution.
Under the new agreement, Fonterra will build a pool of farmer-suppliers in New Zealand and Australia, which will require genetic testing to identify the A2-producing cows.
The Fonterra-sourced A2 milk product – and possibly butter and cheese – may also be sold in Australia, the United States, the United Kingdom and Southeast Asia.
The aim is to build greater returns for both companies by growing demand locally and internationally using The a2 Milk Company’s brand strength.
Miles Hurrell, Fonterra’s farmsource chief operating officer, said he would begin talks with farmers in the fortnight.
Some who wished to enter the programme might face costs of having to separate their A1 from A2 cows but he did not expect anything as drastic as culling herds.
‘‘A2 [milk] is another consumer choice, like organics. But the majority of milk production around the world remains A1. The value in this is the global reach of Fonterra,’’ Hurrell said.
Spierings said there was still a strong future for Fonterra’s existing range, including recent additions such as organic, lowlactose and high-protein milk – and now the new choice of A2.
The deal includes Fonterra exclusively supplying nutritional milk powder products in bulk and consumer packaging for sale by The a2 Milk Company in Southeast Asia and the Middle East.
The products will be produced at Fonterra’s facilities in New Zealand as well as its nutritionals facility in Victoria, Australia.
The two companies will explore opportunities for a2 Milk-branded butter and cheese, and a jointlyowned packaging factory.
The a2 Milk Company owns patented testing technology to identify cattle for production and subsequent sale of dairy products derived from the A2 type of the beta casein protein.
The company is dual-listed on the New Zealand and Australian stock exchanges and has nearly 10 per cent of the fresh milk market by value in Australia. It contracts other companies including Synlait Milk to produce fresh milk, UHT, infant formula and cream.
The a2 Milk Company posted an after-tax profit of $98 million for the half-year ended December 31. This was up 150 per cent on turnover of $434m.
Its share price hit $10.80 a share after the latest announcements.