Arla Foods is looking to expand the capacity of its Arinco milk powder manufacturing plant to meet the increased demand created by its supply agreement with Chinese paediatric nutrition firm Biostime International Holdings.
In June 2012, dairy co-operative Arla entered into a financing and supply agreement with Biostime. Under the 10-year agreement, Arla agreed to supply up to 20,000 tonnes of infant formula per year to the China-based firm from 2015.
The companies agreed to co-finance an investment of around DKK165m ($28.5m, €22.1m) to upgrade and expand the Arinco facility – in order to meet the increased demand. Biostime agreed to pay half of the expansion costs.
Arla’s board of directors has now approved the Arinco investment, and the expansion is set to begin as early as October 2012.
The expansion, which will create about 30 jobs at the Arinco plant, should be completed within three to six months, an Arla spokesperson confirmed.
Through the investment, Arla hopes to introduce more automated processing systems and improve efficiency at the plant.
Arla Foods vice president of corporate communications, Astrid Nielsen told DairyReporter.com that the expansion is likely to centre on the installation of a new filling line at the plant.
“We are expanding the plant because earlier this year we signed a 10-year agreement with a Chinese vendor. We need to expand the capacity of our Arinco plant because of that,” said Nielsen.
“Because of our agreement, we need to invest in a new filling line.”
Nielsen added that, although driven by its deal with Biostime, the expansion is the firm’s latest effort to increase its global presence in the infant formula market.
“We hope to expand even more in the infant formula field – this is one development,” she said.
“We are looking at other areas of development. We can’t tell you the scale, but we are looking for other developments. It could in China, it could be anywhere. We have been working with third parties for a long time, so we are looking for opportunities on a global scale.”
The contract with Biostime came within days of Arla’s strategic agreement with Chinese food company, COFCO Corporation.
Through its deal with COFCO, Arla became an indirect shareholder in Mengniu Dairy Company – holding an approximate 6% interest in the firm.
The agreement allowed Arla increased access to sales and distribution channels in China.
Arla has denied, however, that it has further plans in the Chinese market at the moment.
“At this point we have no further plans to expand our presence in China. But it is an area we are eager to further develop in in the future,” Nielsen added.