Fonterra eyes dairy venture in Poland

By Chris Mercer

- Last updated on GMT

Related tags: Dairy, Milk, Poland

Two of the world's largest dairy firms, New Zealand's Fonterra and
Europe's Arla, are looking to increase their operations in the
Polish dairy industry, according to a recent report.

Fonterra, the New Zealand dairy co-operative, is considering a joint-venture deal with Polish dairy Polindus, according to a report on the Polish dairy sector by the US-based Babcock Institute at the University of Wisconsin.

Polindus said Fonterra was interested in using it to supply milk powder to the New Zealand firm's Algerian markets.

Skimmed milk powder is the Polish dairy industry's second biggest export product, bringing in an annual €161m.

The report said Fonterra was negotiating deals in a number of markets to help meet global supply commitments when New Zealand supplies run short.

"Fonterra also uses joint ventures to enable the firm to process New Zealand milk powders into higher value-added items and sell foreign-sourced powder for lower value-added uses,"​ it said.

Fonterra was unable to comment on the report before this article was published.

The Babcock report also noted further interest in Poland's dairy sector by Scandinavian dairy firm Arla Foods.

"Arla believes that its Polish cheese operations will help the firm offer cheeses at the lower end of the price scale, making the firm more attractive as a partner with its European customers for this business."

It said Arla, which is already established in Poland's dairy industry, but has not been active in this sector before, wanted to use Polish cheese to expand on the European cheese market.

Hard cheese makes up around a quarter of all Polish dairy exports and fetches the industry a combined €170m every year.

And it is hard cheese that is likely to be a big driver of foreign dairy investment in Poland, according to the Babcock report.

It said those already established on the market, such as Danone, Arla and Hochland, "are likely to concentrate on dairy items for which the income elasticity of demand is largest. This would put them heavily into hard cheese production."

The report said foreign dairy investment in Poland was likely to increase over the next few years, despite the fact that various firms have either left the market or scaled back operations.

US group Kraft, for example, ended its cheese business in Poland, reportedly because it found it hard to compete with Hochland. And Nestlé has closed down its fresh milk-based factory and sold off another dairy plant to the Polish Lacpol Corporation.

Dutch dairy Campina, meanwhile, has ditched its polish production and distribution facilities and will focus on marketing added value products like dairy desserts, dairy drinks and yoghurt in the country.

Babcock said that Poland's dairy industry generally was entering a huge transition period, following the country's accession to the European Union (EU) in 2004.

The report said the relatively small milk quota Poland had obtained from the EU threatens to transform the country from a net exporter of dairy to a net importer within five to seven years. Figures show the change would be drastic - export value was predicted at almost €650m in 2005, with imports at around €100m. Almost half of exports go to the old EU-15 nations.

It added that greater consolidation was needed on the domestic dairy industry too: "Stated bluntly, Poland has far too many dairy farms and dairy processing plants."

There were 356 dairy plants in Poland at the start of 2005, with 212 given clearance to sell in the EU based on the bloc's strict quality standards. The remaining 144 have until the end of 2006 to meet the standards, though the report said it sensed "most of these plants will go out of business by the end of the transition period"​.

Related topics: Markets, Fonterra

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