By Lynda Kiernan
Synlait Milk, a large-scale dairy processor and producer of a range of dairy products including infant and adult nutritional formulas, functional food ingredients, and specialty products, announced it has acquired a 582-hectare (1,438-acre) farm adjacent to its Dunsandel facility in New Zealand’s South Island for NZ$25.7 million (US$14.8 million).
New Zealand’s Overseas Investment Office (OIO) has granted its approval of the deal, which would provide Synlait with three benefits:
~ Improved water rights, securing access to water and the ability to dispose of its factory processing water
~ Strengthen its supply chain efficiencies by enabling the company to develop a rail sliding adjoining its Dry Store 4 Warehouse project. Once completed, goods will be able to be transported by rail between Dunsandel and Syttelton, reducing the company’s environmental footprint by eliminating 16,000 truck movements per year.
~ And the ability to trial sustainable farming practices and to carry out on-farm research. This will be in support of Synlait’s 10-year sustainability targets through its Lead With Pride program.
“Our purpose at Synlait is doing milk differently for a healthier world and this land provides a unique opportunity to pursue on-farm sustainability initiatives and reduce our environmental footprint whilst creating further supply chain efficiencies in our business,” said Leon Clement, CEO, Synlait. “We’re excited about this opportunity and look forward to updating you on our plans as they progress.”
In the past three years, Synlait has made multiple strategic moves, gaining greater presence in New Zealand’s dairy industry.
In May 2017 the company announced it had agreed to acquire 100 percent of Auckland-based The New Zealand Dairy Company (NZDC) in a deal valued then at NZ$56.5 million (US$39.9 million).
At the time, NZDC was in the process of building a canning operation for the production of infant formula in Mangere to be transferred to Synlait upon closing. The new facility gives Synlait the ability to boost its blending and canning operations and gives the company control of a highly-specified sachet packing line suitable for infant formula and milk powders.
“The production line will be very similar to the blending and canning plant already in operation at Synlait’s Dunsandel site, with the same scale, high standards, equipment and build specifications,” said John Penno, managing director and then-CEO of Synlait at the time.
More recently, in October 2019, the company announced its acquisition of New Zealand dairy company Dairyworks for NZ$112 (US$71 million).
Established in 2001, and with a manufacturing facility in Christchurch, Dairyworks produces milk powder, cheese, butter, and ice cream products under multiple brand names including Dairyworks, Alpine, and Rolling Meadow.
“Dairyworks is a nimble and innovative company,” said Synlait CEO Leon Clement. “It will fit well with Synlait and provides us with an opportunity to keep optimising our value chain while giving access into Australia where Dairyworks presence is growing.”
Indeed, Synlait’s presence is growing in New Zealand, and this also strengthens the company’s ability to gain market share in China’s massive dairy and $25 billion baby food market.
In 2015 China had more than 2,000 domestic infant formula companies operating in the country. However, as a bid to increase safety and raise consumer confidence, Beijing adopted new policies under Regulations on the Administration of Formula Registration for Infant Formula that require each branded infant formula in the country to be registered with the China Food and Drug Administration (CDFA) and to provide a full list of ingredients. Each separate brand also will be required to have a unique formulation that contains a minimum of six nutrients that are different than all other brands on the market; subsequently, the new regulation is being called the “One Brand, One Formulation” policy.
Often, Chinese producers will manufacture infant formula in enormous batches to cut costs; selling leftover formula to outside distributors at a lower price. These distributors will then repackage the formula labeled under multiple ‘sub-brand’ names, often agreeing to sell the sub-brands in only certain regions of the country, leaving selected markets open only to the original, more expensive brand sold by the manufacturer.
This practice creates a market that is difficult for the government to control, and a retail environment that is confusing for consumers. Because of this, the new policy also dictates that all brands must be sold nationwide. Implementation of the new policies are expected to reduce the number of infant formula companies operating in China by 80 percent, leaving market share open for large-scale foreign suppliers to fill.
– Lynda Kiernan is Editor with GAI Media and daily contributor to the GAI News and Agtech Intel platforms. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.