Fonterra signs up NSW dairy co-op Norco

Fonterra is set to take another significant step into the Australian milk market by hooking up with the second largest dairy co-op in New South Wales, Lismore-based Norco.

The move will boost Fonterra's plans to market and distribute fresh milk in Australia's eastern states.

Norco and Fonterra have signed an agreement to investigate an alliance under which Norco would provide milk and manufacturing facilities to Fonterra on a preferred basis.

In return, Fonterra would give Norco sales, marketing and distribution support for its dairy products.

Fonterra already has revenues of A$1.9 billion ($2.25 billion) a year across the Tasman and processes 21 per cent of Australia's milk.

A spokeswoman for Fonterra Australia said she could not rule out either party making some sort of financial payment to the other but nothing was proposed at this stage.

Fonterra Brands managing director Aidan Coleman said an alliance would give his company more opportunities to grow branded milk sales in Australia. It holds the number one and two slots in the retail cheese market.

The deal will follow Norco's acquisition next month of Parmalat Australia's half share in the Norco Pauls milk joint venture.

Norco chief executive Murray Richardson said the proposed alliance gave the company the potential to expand its business beyond the geographical restrictions involved in the agreement with Parmalat.

Senior Fonterra officials remained unavailable yesterday to discuss disappointing profits at the co-op's wholly-owned Bonlac Foods operation in Victoria and Tasmania.

A big rise in revenue and costs for little gain has led to speculation Fonterra has been paying a high price in Victoria and Tasmania to buy milk to expand market share in Australia.

It remains to be seen whether a supply deal with Norco will help ease significantly any pressure Fonterra faces to acquire milk.

Norco has about 200 active co-op members compared with Fonterra's 11,000-plus suppliers in New Zealand.