Synlait, 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 agreed to acquire 100 percent of The New Zealand Dairy Company (NZDC) in a deal valued at NZ$56.5 million (US$39.9 million).

 

Auckland-based NZDC is currently in the process of building a canning operation that will be able to produce infant formula in Mangere, New Zealand,. This site will be transferred to Synlait upon closing of the deal, enabling Synlait to substantially boost its blending and canning operations. The added facility will also give Synlait control of a high specification sachet packing line suitable for infant formula and milk powders. Additionally, an associated, unnamed company which owns the land and buildings in which NZDC operates is also included in the acquisition.

 

“Our focus is providing the world with superior natural flavours, mouth feel and nutritional value from milk, along with the reassurance of our traceable grass-to-glass value chain,” NZDC explains on its website.

 

John Penno, managing director and CEO of Synlait commented in a company statement that this deal will allow the company to meet current demand while also providing the company “room to grow with our customers’ needs”.

 

“Having a second blending and packaging site will also begin to mitigate some risk we have faced as a single site manufacturing company,” noted Penno.

 

Synlait’s existing production facility has the annual capacity to process 550 million liters of milk, or the daily capacity to process 3.2 million liters or raw milk, resulting in output of 340 tons of milk powder, according to Dairy Reporter.

 

“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 Penno.

 

Initial capital investment by Synlait includes a gross payment of NZ$33.2 million (US$23.5 million) upon acquisition, with expectations that Synlait will spend a total NZ$56.5 million (US$39.9 million) once the new plant is commissioned.

 

Sylait plans to work to secure export registration for the new facility from both New Zealand’s Ministry for Primary Industries (MPI) and China’s Certification and Accreditation Administration of the People’s Republic of China (CNCA).

 

Gaining export registration is a strategic move by Synlait that would gain the company a secure foothold in China’s lucrative and embattled infant formula market.

 

In 2015 China has more than 2,000 domestic infant formula companies operating in the country. However, 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 will also 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 distributor 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

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com.