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 premium product will be sold in China by Oceania's owner Inner Mongolia Yili Industrial Group (Yili), China's largest dairy processor.
The first batches from the Glenavy plant are in China for trials by consumers; new general manager Roger Usmar is heading to China this month to see how the product fares.
Usmar told Dairy News he expects full production of infant formula to start by the end of this year.
Infant formula is part of Oceania's $400 million expansion plan for the next three years; lactoferrin and UHT milk in cans and sachets are also on the radar.
Oceania, which began production August 14 last year, is Yili's first investment outside China.
In its first season of operation, Oceania received and processed 206mL of milk, producing 32,000 tonnes of milk powder, most of which has been exported to China, generating US$90m revenue.
Usmar says Yili is proud of Oceania's first year performance. "The plant has performed well," he says.
The $400m expansion project will triple capacity. "We will add 130 [jobs] at the site and handle 630mL of milk from local farm suppliers," he says.
Yili is also keen to improve staff talent and capability at Glenavy. "We are sending people for training at Yili sites in China and hopefully one day Oceania can become a net exporter of talent for our owners," says Usmar.
Listed on the Shanghai stock exchange, Yili's 2013 revenues topped $11.3b, making it the world's tenth-largest dairy company.
Of the 206mL of milk processed, 77% of it came from Oceania's own supplies and 23% through DIRA. However, this season Oceania expects to generate 82% of its total milk supply from its own supply farmers.
Usmar says 49 supply farmers supplied ODL in the factory's first season; about 63 farmers will supply it this season. The average herd size for Oceania's suppliers is 800 vs the industry average of 400.
Usmar says ODL pays its suppliers 10c above Fonterra's payout and believes securing more milk won't be a problem. "We have our own suppliers growing their milk supply and potential suppliers are also showing interest."
Veteran likes what he sees
Usmar was Fonterra’s Te Rapa site manager when he left the co-op two years ago.
After a stint in Western Australia he returned to the New Zealand dairy industry.
Usmar says there are major differences between Fonterra and Oceania; one is a multi-plant operator making an array of dairy products, while Oceania now mostly makes milk powder.
“The biggest difference is that Oceania has one asset,” he says.
Usmar has extensive NZ dairy industry experience with Fonterra and its legacy companies, and in-depth operational and people management experience. He is excited by the challenge of Yili’s development plans for Oceania.
“[Our] $400m expansion will triple capacity and considerably expand Glenavy’s product range by 2017,” says Usmar.
