Arla Foods is spending $160m building a factory to turn a byproduct which has been used as pig feed into a high-value infant formula ingredient, as part of its plans to triple its revenues in emerging markets.

The European dairy giant, which employs more than 19,000 staff, said it would by 2016 begin full operations at a plant producing whey-based lactose, largely for shipment to its "strategic growth markets" of Africa, China, the Middle East and Russia.

The plant, being built next to an existing Arla site near Vium in Denmark, will enable the co-operative to fill a missing link in its milk processing chain.

"It will allow us to fully value add for our owners the last constituent of the milk we receive," an Arla spokesman told Agrimoney.com.

Until now, the lactose, released when processors concentrate protein from whey, has been sold as a pig feed ingredient, rather than into the child nutrition market, which offers a far higher price.

Growth plans

The DKK900m ($161m) project is part of a plan by Arla, revealed earlier this month, to raise from DKK3.5bn to DKK10bn by 2017 its revenues in its key markets, which offer growth potential lacking in its historic European stamping ground.

This increase will be supported by a doubling to DKK5bn in sales of food ingredients, such as lactose, with the group aiming to cut its production costs by DKK2.5bn by the end of 2015.

The new plant, which will produce 85,000 tonnes of lactose a year, will create only 20 new jobs, harnessing capabilities at the Vium site's existing plant.

"There will be some synergies in areas such as transport, planning," the spokesman said.

Extra milk output

The increased focus on producing food ingredients from milk is a fairly well worn one in the sector, already trod by companies such as Glanbia, which now views manufacture of products such as whey as a core operation, and is moving away from traditional dairy operations.

The issue is particularly pressing in the European Union thanks to the removal of milk production quotas, a withdrawal which is expected to see output in some countries rise considerably, creating an opportunity, and need, for groups such as Arla to find new markets.

"Without EU quotas it is anticipated that Arla's milk farmers will produce at least 1bn kilogrammes of milk more each year than today," the co-operative said two weeks ago.

"The extra milk cannot be sold as profitable products in the EU due to growth stagnating."