The move, which will combine Fonterra's expertise in liquid milk formulations with its business, technical and marketing knowledge, is a logical progression for the dairy co-operative, which already has five value-added subsidiaries that focus on speciality ingredients, part of the health and nutrition division.
The new so-called 'business incubator' will focus on licensing milk formulations and IP rights in return for sales-based royalty payments or licensing fees. The company claims it already has a number of potential licensees, although it intends to establish only a select customer base.
"We want to establish a small set of customers that rely on us for their product development, who will tell us their business strategies and what products they want ahead of time, so that we can develop them, commented Dr John Smith, Fonterra business manager, formulated milks.
"What we are doing is asking customers to pay very transparently for the value we bring and in that way we will be recognised as a value-adding company. This is a model which has potential to roll out into many other businesses within Fonterra," he added.
Fonterra hopes the new licensing project will help penetrate the lucrative markets across Asia, China and the Middle East, which already have a strong growth platform for formulated milk products - particularly in the nutritionally enhanced milk sector.
Fonterra's product portfolio in this field includes Junior, a milk for 3-10 year-olds with additional iron, protein, vitamin C, vitamin D and calcium, Nurture, a milk for pregnant women, and Silver, a milk targeted towards elderly consumers.
Other Fonterra formulations included in the new business include non-dairy based products, such as rice and soy milks, a specially formulated milk suitable for people with Type 2 diabetes, and Dulce de leche, a caramel-flavoured ingredient used across a range of dairy products such as functional dairy-based drinks.
Craig Knox, Fonterra's new business general manager, said the addition of the new formulated milks business, launched last month, is a significant step forward in consolidating Fonterra's value-added activities. The company is also exploring the possibility of opening a further eight to ten potential incubator businesses.
As reported by DairyReporter.com last month, the dairy co-operative has clearly underlined its long-term ambition to move away from commodification and towards more value-added products. For example, it recently opened a NZ $15 million lactoferrin milk protein factory in New Zealand.
Lactoferrin and other bioactives - high value, molecular components of milk which are widely used as functional ingredients - have been identified as a major driver of Fonterra's value-added ingredients business across a number of key markets.
Speciality ingredients growth businesses are currently growing at 12 per cent per year, generating revenue in excess of NZ $500 million over the previous fiscal year.