The two deals, one with global child food specialists Mead Johnson Nutrition and the other with Indonesia’s Kalbe Nutritionals, are sufficiently large and long-term for Murray Goulburn chief Gary Helou to give the go-ahead to a new $300 million specialist nutritional powder factory to be built at Koroit in western Victoria.
Mr Helou said the two infant milk powder supply agreements, which he declined to quantify or value, provided the third piece in the jigsaw of Murray Goulburn’s transformation from a bulk low-value dairy commodity business to a high-value, value-added food processor and exporter.
The twin Murray Goulburn contracts follow high-profile infant formula supply deals in the past six months involving Blackmores and Bellamy’s with milk companies Bega Cheese and Fonterra, respectively.
More than two-thirds of the 3.6 billion litres of cow’s milk that Murray Goulburn buys annually — 37 per cent of Australia’s milk supply — is now processed into its three identified growth sectors of high-value cheese, dairy beverages and nutritional powders.
“This is a very important development; nutritional powders are one of the three strong categories we are backing and now we have secured two long-term offtake supply arrangements with world-leading companies,” Mr Helou said.
“These are significant volumes; we wouldn’t go ahead with this significant investment at Koroit without them.”
Koroit is already the largest of Murray Goulburn’s 10 Australian processing facilities, processing one million litres of milk a year from Australia’s largest dairy-producing region in western Victoria and southwest South Australia, between Colac, Warrnambool and Mount Gambier.
Mr Helou is confident the company will not run short of milk as it expands its infant, toddler and health formula powder-processing capacity to meet the new contracts, despite current low prices and dry weather depressing local farm milk production.
He said much of the milk to supply the new Koroit nutritionals powder plant would be diverted by Murray Goulburn from lower-value uses, such as bulk skim and whole milk powder for export.
Murray Goulburn will build its Koroit facility in two stages.
Instead of immediately installing a single, large, expensive milk powder “dryer” capable of processing 63,000 tonnes of infant formula annually, Mr Helou said savings could be delivered by commissioning a smaller 45,000 tonne-a-year dryer to begin operating in 2019, followed by a second similar-sized dryer later as demand dictated.
Each nutritional powder dryer will require about 250 million litres of cow’s milk annually. This is then blended with high-quality vegetable oils such a canola, and a number of vitamins, trace minerals and health supplements to closely mimic human breast milk in the case of baby formula.
The share price of the investment fund associated with Murray Goulburn — itself a farmer co-operative — rose 2.6 per cent to $2.16.