Fast growing dairy youngster, A2 Milk Company, is teaming up with global giant, Fonterra, giving the New Zealand co-operative exclusive rights to process and sell fresh A2 milk in NZ and nutritional powder in new Asian and Middle East markets.
Nutritional formula will be manufactured at Fonterra’s Darnum plant in Victoria, then packed into consumer lines at Fonterra’s facility in Hamilton, NZ.
The two companies also plan to eventually set up a co-owned packaging site in NZ.
The move comes as the trans-Tasman A2 Milk posted a 150 per cent rise in half-year profits to $91.8 million for the six months to December 31, fuelled largely by more growth in its infant formula business and rising milk sales in its key markets such as Australia.
A2 Platinum powder is the fastest growing infant formula brand by value in Australia, with mainstream market share rising from 26pc to 30pc in the past year.
The strategic alliance will also see Fonterra and A2 establish a new milk pool in Australia and NZ for farm deliveries of the specialist product, which, unlike most cows’ milk, does not contain the A1 beta-casein protein.
Consumers like choices and the growth of A2 branded nutritional powders and fresh milk sales in Australia shows the potential.
A2 Milk is also looking at opportunities for butter and cheese lines made from A1-free milk, and produced at Fonterra plants in Australia and NZ for the trans-Tasman market.
Options for A2 milk sourced in China are also being considered.
A2 Milk Company (A2MC) was founded in NZ 18 years ago, but has not held much sway in that market, partly because of licence arrangements held by another NZ party had restricted its rights to market A2 products at home.
Now dual-listed and based in Australia, A2 has built a growing international business bolstered by infant formula product exports, now thriving in China, plus an emerging fresh milk position in the US and Britain.
The company said first-half sales of its A2 Platinum infant formula, produced in NZ, grew significantly in China and Australia, while brand awareness and sales expanded in the US.
A2 Milk is marketed as “tummy friendly” for people who normally experience discomfort when drinking cows’ milk.
Ironically, until now Fonterra and other major Australian milk processors, have challenged the accuracy of claims about the superior digestive characteristics of A2-only milk and A2 Milk’s smart marketing message.
Fonterra is now having a bet each way.
“We continue to see a strong future for dairy based on our existing range of products, including recent additions such as organic, low-lactose and high protein milk choices,” said Fonterra’s NZ-based chief executive officer, Theo Spierings.
"Consumers like choices and the growth of A2MC branded nutritional powders and fresh milk sales in Australia, for example, shows the potential.”
He said the A2MC products promoted by this new partnership sat well within Fonterra’s overall portfolio of products.
"It is a win-win for both companies,” Mr Spierings said.
"The partnership is intended to fast-track market growth and this creates opportunity for our farmers to create additional value from their milk."
The opportunity to work together with Fonterra to explore new markets and products is also significant.
A2 Milk described the deal as “a significant development given the wide-ranging nature of the relationship”.
The partnership would expand A2MC’s ability to build business in new priority markets and beyond, provide growth initiatives with new A1 protein-free products and give consumers access to new and innovative milk products.
A2’s managing director, Geoffrey Babidge, said the manufacturing and supply agreement would give his business “a highly-credentialed second manufacturer” to support the company's growing nutritionals business.
Fonterra would also provide access to large scale manufacturing on competitive global terms.
"Our company has been evaluating the best approach to build a meaningful position for A2 Milk-branded fresh milk in NZ for some time,” Mr Babidge said.
“In our view, the relationship with Fonterra is the ideal model to build brand awareness and deliver a consistent high-quality product to the broadest customer base in this market.
"The opportunity to work together with Fonterra to explore new markets and products is also significant.
“Fonterra's resources and capability in many of our new priority markets should provide a basis to more quickly expand distribution of A2MC-branded nutritional products.”
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