Natural Dairy sought Tatua tie-up

Friday 9th July 2010

Natural Dairy (NZ) Holdings, the Hong Kong-listed company looking to buy the Crafar family farms, tested the waters with Tatua Cooperative Dairy Co. for UHT milk processing.

The talks went nowhere, but reveal more of Natural Dairy's plans to create a UHT export business using New Zealand milk for Chinese consumption.

In a statement lodged on the Hong Kong Stock Exchange, the diversified investment company said its chairman and vice-chairman met with Tatua this year to try and stitch up a processing arrangement, but the cooperative didn't have the spare capacity and decommissioned its dated UHT milk production line.

Tatua chief executive Paul McGilvray said Natural Dairy executives were "testing the waters" and didn't provide much detail as to what they were after.

"They wanted to do a long-run at low-value, and Tatua has fixed its milk focus on the high end," McGilvray told BusinessDesk.

"It didn't fit at all."

Since then, Natural Dairy subsidiary Jiangxi Natural Dairy entered into a 12-month agreement with May Wang's UBNZ Funds Management, beginning in October, to supply and process 150 million packets of 250 millilitre UHT milk which will ultimately end up in China.

The Hong Kong company will put up a deposit of some $21 million in a deal that will see it pay 70 cents a packet. Natural Dairy will search for production facilities to lease or buy once it's concluded the purchase of UBNZ Assets Holdings, of which it already owns 20%. UBNZ Assets has a conditional agreement to buy the 16 Crafar family farms, subject to Overseas Office Investment approval.

The group said it intends to own the entire value chain from production to distribution, and will consider purchasing facilities from UBNZ Funds in the future.

UBNZ Funds is seeking about 39 million litres of raw milk from Fonterra Cooperative Group between this October and September next year, and told Natural Dairy it leased a vacant factory and sourced three UHT milk production lines.

"UBNZ Funds has advised the company that it does not foresee any impediments to the completion of the establishment of the production facilities and the commencement of the production in October," the Natural Dairy statement said.

Fonterra is obliged to supply milk to competitors under the Dairy Industry Restructuring Act, and protested again this week that the regulations were against New Zealand's national interest.

Natural Dairy is looking to sell New Zealand-sourced UHT milk products in 24 Chinese cities, and compete with imported Japanese products.

The company's directors said they believe the New Zealand milk will "command a price premium over local Chinese dairy milk products."

The $21 million deposit will be used to pay for forward contracts on milk, and has yet to be paid.

If UBNZ Funds fails to meet the required order schedule or if the milk supplied doesn't meet quality or hygiene standards, Natural Dairy will be able to seek compensation.

Businesswire.co.nz

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