Fran O'Sullivan: Free trade deal buoys Fonterra

Fonterra chairman Sir Henry van der Heyden says the dairy co-operative will step up investment within Asia because of the Malaysian free trade deal.

Sir Henry said the new deal was a very important agreement in an environment where many countries had turned to protectionism rather than free trade.

"This gives us the confidence to invest money here in Malaysia."

An early sign of that beefed-up confidence came yesterday with the official opening of a $12 million expansion of the Fonterra Dairymas cultured foods plant in Kuala Lumpur.

Sir Henry was joined by Prime Minister John Key as they unveiled a plaque to commemorate the expansion. Key told local news media that Fonterra was a very large part of the New Zealand economy and a critical part of its growth story.

The FTA will give New Zealand greater access to liquid milk quotas within Malaysia, enabling it to increase volumes to 2.1 million litres growing by 5 per cent a year.

This is an improvement on the clause under the Asean deal which was jointly signed with Australia and New Zealand this year which provided for total inquota access of 500,000 litres growing at 1 per cent a year.

On top of this the elimination of the 20 per cent inquota tariff for liquid milk will be wiped - three years earlier than timetabled under the Asean deal.

Sir Henry joined a bevy of top New Zealand business leaders who later accompanied Key to his meeting with Malaysian Prime Minister Najib Tun Razak before witnessing the signing of the FTA by the two trade ministers.

Sir Henry noted the Kuala Lumpur investment was an "excellent example of how the co-operative was adding value and growing earnings for New Zealand farmer-shareholders. Our operations in Malaysia are based solely on New Zealand milk ..."

Fonterra employs 400 staff in Malaysia where it uses its operations as a vital test market for Asia.

Fonterra earnings from the Asia/Africa Middle East (Asia/AME) region were up 19 per cent in the 2008/09 financial year, while revenues were up 22 per cent.

Cultured dairy product sales grew 71 per cent.

Mark Wilson, regional managing director for Fonterra Asia/Africa and Middle East, said: "There is huge opportunity for Fonterra in Malaysia where, with a climate not suited to dairying, they rely upon imports to meet over 95 per cent of domestic dairy consumption."