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Fonterra chief executive Theo Spierings said the partnership between two leading dairy nutrition companies will be a game changer that will provide a direct line into the infant formula market in China, which is the biggest growth story in paediatric nutrition in the world.
The cooperative said it would spend $555 million on building a new milk powder drier in the Waikato and on increasing its milk processing capacity in Southland to help meet global demand for dairy products.
See the Fonterra China partnership deal announcement here:
Fonterra chief executive Theo Spierings said the investment would but allow for more flexibility to better optimise the cooperative's production capacity.
"Our strategy is to increase earnings by driving more milk volume into higher value categories globally by turning the wheel from commodities to higher-margin products," he said in a statement.
"By creating more options for our New Zealand operations we are better placed to be able to make the product mix that delivers the greatest returns to our farmers and meet the needs of our consumers and customers worldwide," he said.
Approval has been given to build a drier at the Lichfield site in South Waikato capable of processing up to 4.4 million litres per day and similar in size to the world's largest drier at Darfield, in Canterbury, which produces up to 30 tonnes powder an hour.
Three plants will also be installed at the Edendale site in Southland, comprising a milk protein concentrate plant, a reverse osmosis plant, and an anhydrous milk fat plant.
Fonterra has invested more than $1.8 billion to grow processing capacity since 2011.
Dairy prices are 40 per cent below their February peak and are now a touch below their post-2000 average.
Earlier this month, Fonterra cut its forecast 2014/15 farmgate milk price forecast to $6.00 a kg of milksolids from previous forecast of $7.00 a kg. In a separate statement, Fonterra said it would maintain its milkprice forecast of $6.00.
Units in the Fonterra Shareholders Fund last traded at $6.13, up 1c.
See the Fonterra processing expansion release here: