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
"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.
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
"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."