Fonterra strikes deal with Bellamy's to make organic infant formula

See also: Fonterra supports China's crack-down on infant formula "grey market"

Fonterra [NZX: FCG] and Bellamy's Australia have entered into a five-year, multi-million dollar deal to manufacture a range of new baby nutritional powders at the Darnum infant formula plant in southeast Victoria.

Tasmanian-based Bellamy's is Australia's only certified manufacturer of organic infant formula and is one of the country's fastest-growing companies in that sector. It had revenue growth of 156% in the past financial year while its stock price has risen by close to 600% since listing on the Australian Stock exchange last year.

Bellamy's says it has been working throughout the year to add capacity "so we can meet the growing demand for our certified organic formulas from Australian parents and our export markets."

The arrangement with Fonterra is in addition to its current manufacturing agreements and will kick in at the start of next year.

Bellamy's came in for social media criticism this month when it ran short of product after a surge in sales ahead of China's online discount shopping day, Single's Day.

It blamed people buying its products to on-sell in overseas markets for the lack of its products on Australian shop shelves. Online sales for Australia and New Zealand customers are now being restricted.

Fonterra's Oceania managing director, Judith Swales, says the deal is part of the plan to turn around its loss-making Australian business.

"We are actively growing our nutritionals business through strategic partnerships and agreements which will see the Darnum nutritionals plant move toward full capacity," Ms Swales says.

Fonterra is focusing the Australian business on making cheese, whey and nutritionals, complemented by its consumer and food service businesses.

Ms Swales says Fonterra is close to finalising the Darnum joint venture with Beingmate in which it has taken an 18.8% stake. The plant will be owned in a 49:51 joint venture between Fonterra and Beingmate.

Fonterra has a clear plan to return its Australia business to sustainable profitability and told BusinessDesk earlier this month that it should become profitable in the next year.

The Australian business has under-performed for years with a $108 million write-down on its yoghurt and desserts assets in the 2015 financial year, along with a $106 million revenue drop to $1.56 billion.

Ms Swales says the loss of infant formula maker Danone after the WPC80 incident and a fire at the Stanhope factory, which affected speciality cheese production, were key factors as Australia continued to bleed red ink.

(BusinessDesk)