What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
The foodservice category includes full and quick service restaurants, institutions, hotels, airline catering facilities and other commercial kitchens.
The investment is the final stage of a technology upgrade that will double the capacity of the Clandeboye plant in Canterbury to produce individual quick frozen (IQF) grated mozzarella. When fully implemented, this will increase Fonterra's IQF mozzarella capacity across its two plants in New Zealand to over 50,000 MT per annum.
Additional capacity is required to meet growing international demand, primarily in global fast food restaurant chains, supported by growth in regional fast food and fine dining restaurants.
Clandeboye uses a manufacturing process that was developed by the Fonterra Research and Development Centre. This world-leading patented technology means that frozen natural shredded mozzarella can be made straight from milk in one day, rather than two months taken by conventional mozzarella processes.
This is a great example of the type of process and product technology development work being undertaken by Fonterra. Fonterra is driving further enhancement of this technology in partnership with the Ministry for Primary Industries, through the Primary Growth Partnership (PGP) initiative.
Fonterra director of foodservice, René Dedoncker says that growth in the global foodservice category is being driven out of emerging Asian markets where the category is estimated to grow at around 13% annually to 2016.
"Demand for high-value dairy products like mozzarella is being fuelled by changing dietary habits, particularly in Asia where there is a significant move toward more Westernised diets.
"For example, there has been dramatic growth in the number of pizza restaurants in China where key customers such as Yum! (owners of the Pizza Hut brand) and Domino's Pizza are undertaking aggressive expansion plans in new and existing markets."
Earnings potential in the foodservice category is well recognised by Fonterra.
Dedoncker says the foodservice category is one of seven strategic paths identified in the cooperative's business strategy and it was one of the stand-out performers in Fonterra's annual results released at the end of September.
"Our progress last year shows that our strategy is delivering the results we want in our priority areas. A good example is our Asia, Africa and Middle East business where we achieved a 45% normalised EBIT growth in foodservice. We also achieved double digit growth in China where foodservice grew 28%."
With demand for out-of-home meals increasing annually, Fonterra expects sales in this category to grow further.
The Clandeboye plant upgrade will begin in mid-2014 and is due to be completed by September 2015.
