Nutritek announces dairy divestment for profit push

With dairy processors facing increasing commodity costs for inputs such as raw milk, the company's strategy reflects one of the responses industry is taking to ensuring profitability. As part of the $350m (€238m) deal announced last week, the company will sell six dairy processing plants and its agricultural site in the Vologda region to Russagroprom in order to fund expansion into product development. Under a further condition of the agreement, Nutritek says it has the option to purchase back 30 per cent of the sold operations at the selling price within five years. The company estimates that the current value of this stake amounts to $100m (€68m) . Group chief executive officer Gennadiy Popov said that selling off dairy operations would be vital in strengthening the company's financial position. "The upcoming cash will be used for developing the high technology and high margin baby food production, for the projects in​ South-East Asia​ and for repayment of debts,"​ he stated. "This deal​ will further strengthen the position of Nutritek as a market leading producer of baby and special foods in the Commonwealth of Independent States (CIS) and Baltic countries." ​ Russagroprom's president said that integrating of the dairy processing and agricultural operations from the sale would grant them more control over their supply and production lines. "The only way to meet the challenge of prices growth limitation is a vertical integration of the dairy processing chain from a very beginning of herd quality management to cattle feeding and milk processing." ​ Nutritek is not the only dairy group having to amend its processing operations to ensure competitiveness in the current commodities market though. Scandinavian cooperative Arla Foods announced in September that it was cutting cheese production by 6,200 tonnes until the New Year in a drive to better deal with a dwindling global supply of raw milk.