KEY POINTS:
Overseas companies have invested more than $37 million shoring-up two new South Island dairy-processing companies.
Japan-based Mitsui and Company has spent $13.5 million buying a 14 per cent share in Canterbury's Synlait, while Nutritek Overseas from Singapore is underwriting $24 million in capital-raising by New Zealand Dairies at Studholme.
NZ Dairies chairman Peter Lavery said from Melbourne that Nutritek would also "ensure there are sufficient funds to complete the project and working capital" when the company's South Canterbury plant was commissioned in August.
He said banks were reluctant to fund cost overruns at the new factory.
The original plans were not to the required scale for the plant's actual size and material costs had risen, especially for stainless steel.
Dunedin investment company Skeggs Group, which had a small shareholding in the company, is also selling its stake, a deal Lavery said should be finalised in the next few days.
Lavery said Nutritek produced and distributed nutritional foods for infants and children in Russia, Western Europe, Southeast Asia and China, and the deal gave New Zealand Dairies not only a cash injection but also a supply agreement between the two companies.
"They see New Zealand Dairies and Studholme as a key in their sourcing for Asia and China."
Lavery said NZ Dairies was satisfied with the level of commitment from milk suppliers, but if the Studholme plant was not operational by the start of next season an agreement was in place with another processor to take the milk.
As well as spending $13.5 million in buying its shareholding, Mitsui has provided a further $16.5 million loan to the Canterbury company.
Synlait, a corporate dairy farmer, this year expects to produce four million kilograms of milk solids from 10,000 cows which it will supply to Fonterra. But in the next year it will build its own wholemilk powder plant at Dunsandel, which it aims to have running from August next year.
Synlait chairman Graeme Milne said Mitsui would provide Synlait with supply chain management from the factory to its customers as well as the capital injection. "The arrangement leaves responsibility for developing customer relationships and negotiating each sale with Synlait.
"However, Mitsui will take responsibility for getting the product to the right place at the right time and managing payment back to Synlait."
Mitsui, with annual revenue of $50 billion, has a history of exporting dairy products and, just as importantly, economies of scale in logistics management, shipping and finance.
Some in the agriculture sector believe Fonterra's record $5.53 kg payout for milk in the coming year was intended as a pre-emptive strike against the pending competition.
Lavery, who has 35 years experience in dairy exporting, said Fonterra's payout was not unreasonable and reflected strength in the current market. "The high [payout] to me, is quite credible."
Current international dairy prices reflected underlying demand and he expected some easing but not a crash.
-OTAGO DAILY TIMES
