Olam look to Oceania for growth and take stake in Fonterra competitor

Posted by Daniel Palmer on 8th July 2008

Olam International Limited, a leading integrated supply chain manager of agricultural products and food ingredients, today announced that it will invest and acquire 24.99% equity interest in Dairy Trust Limited (“DTL”), which is poised to become New Zealand’s second largest dairy processing company. The total value of their investment will be just above NZ$100 million (around A$80 million) after they sell their 19.9% stake in Open Country Cheese Co. to DTL.

The deal enables Olam two seats on DTL’s board and will lead to Olam playing an active role in sales and marketing for DTL.

Sunny Verghese, Olam’s Group Managing Director and CEO, advises that the stake in DTL is part of their global growth strategy. “Our investment in DTL is central to our strategy of developing a global leadership position in the dairy business over the next few years,” he indicated. “We are very proud to be part of DTL, a strong and emerging private dairy company in New Zealand. The DTL group and their shareholders have a long and successful track record in New Zealand’s agribusiness sector. We believe our investment in Dairy Trust is well-placed to support our entry strategy in New Zealand and participate in its large and growing dairy sector.”

Chairman of DTL, Sam Lewis, welcomed Olam as a new partner for DTL and hopes the partnership will improve growth prospects for the company. “Olam has a proven track record as a solid and substantial customer for Dairy Trust and OCC,” he claimed. “It holds strong marketing and distribution links throughout key export markets that the group is targeting.”

The New Zealand dairy processing industry is extremely concentrated, with NZ co-operative Fonterra currently processing over 90% of milk produced in New Zealand.

Olam’s Managing Director and Global Product Head of Coffee and Dairy Products, Vivek Verma believes that opportunities in the New Zealand dairy industry are as good as anywhere else in the world. “New Zealand is a priority location as it offers the lowest cost of production, the highest medium-term growth rate of 3% in raw milk supply, the largest export volumes compared to other exporting countries (26% of world dairy trade) and proximity to Asia, the largest and the fastest growing import block in the world (40% of the world dairy trade),” he commented. “In terms of New Zealand’s import share in destination markets, the country enjoys just over 30% of the import share in Asia, about 25% in Middle East and nearly 14% in Africa, all markets in which Olam has a keen interest.”

Olam has been very interested in Oceania expansion with reports that they were contemplating an offer for Australian Dairy co-op Dairy Farmers. They have since opted out of bidding for the company, but are still keen to expand in Australia and New Zealand due to Oceania’s position as a “key dairy origin”.

Bids for Dairy Farmers are due by the end of this month with the race currently between a consortium incorporating National Foods, Fonterra, and Warrnambool Cheese and Butter and, Parmalat and Murray-Goulburn. There have also been reports, unsubstantiated to date, that Canadian dairy group Saputo may make a late bid.