Dairy processor Murray Goulburn will invest up to $300 million in a new powder plant in Koroit, West Victoria, after it secured Asia-region offtake agreements with a pair of nutrition companies.
Deals with Indonesian consumer health and infant nutrition company Kalbe Nutritionals, and global paediatric nutrition company Mead Johnson Nutrition, will help underwrite an investment of between $260 million and $300 million in the plant, the Australian agribusiness told the ASX on Tuesday.
The Koroit plant will include a pair of 45,000 tonne per annum dryers.
Murray Goulburn said the investment would aid its strategy to shift to more stable and higher value-added dairy foods.
Kalbe has agreed to undisclosed, but “significant” minimum annual volumes over time, Murray Goulburn said.
“We are delighted to be extending our partnership with Kalbe, one of Indonesia’s foremost healthcare companies,” Murray Goulburn managing director Gary Helou said.
“MG and Kalbe have worked closely together in recent years to meet the nutritional powder supply needs of Kalbe’s leading infant and children nutrition brands and in doing so, we have developed a deep understanding of each other’s needs and requirements.
“It is therefore particularly pleasing that Kalbe has turned to MG to secure additional supply of quality, Australian nutritional powders for use in their market-leading brands.”
Helou said the deal paves the way for further collaboration between the companies.
He said the dairy co-operative aims to continue growing into Asian markets, including Indonesia.
“Indonesia is an important Asian growth market for dairy foods,” Helou explained.
“It has one of Asia’s largest paediatric populations, with approximately one in ten people under the age of 5, and this represents a future growth opportunity for MG and our high quality dairy foods products, including infant formula.”
The deal announced with Mead Johnson Nutrition is described by Murray Goulburn as “a major long-term offtake arrangement”.
“The collaboration will enable the two companies to capitalise on their complementary strengths – MG’s dairy foods and nutritional powders expertise and MJN’s science-based excellence in infant and young child nutrition,” the company said in a separate ASX statement.
The Koroit plant was to have a single 63,000 tonne per annum dryer. Murray Goulburn says it has made the planning switch to a pair of 45,000 tonne per annum dryers, because it is “the optimal solution to provide the required operational flexibility and higher specification dryers while still delivering the same economic return”.
The new plans will allow Murray Goulburn to install a single 45,000 tonne per annum dryer at first, then increase the plant’s capacity to 90,000 tonnes per annum with the second dryer’s installation “as market demand increases”.
Further savings will be delivered, the company explained, through installing “a more flexible network of smaller dryers”.
Murray Goulburn is expecting the first phase of the plant to be operational in early 2019.
“We have taken a prudent approach to underwriting the economic performance of this key investment for our company, and it is very pleasing to be moving to the next phase of planning,” Helou said.