Fonterra has entered a distribution deal with Fortune 500 company Land O’ Lakes to sell its dairy products to hospitality businesses and major fast food chains throughout the United States.
Headquartered in the upper midwest state of Minnesota, Land O’ Lakes, like Fonterra, is a farmer-owned agriculture co-operative that has been operating for nearly 100 years.
Fonterra global director of food service Paul Harvey said the US was the largest and most competitive dairy food service market in the world.
Land O’ Lakes is one of the biggest producers of butter and cheese in the US and had a profit of US$207 million (NZ$309m) on US$14b revenue in 2019.
Under the agreement, which begins on November 1, Land O’ Lakes will sell Fonterra cream cheese and UHT cooking cream to its food service customers.
Harvey said it was hoped the range of Fonterra products Land O’ Lakes sold would expand over time.
The initial agreement is set down for five years with the possibility to expand it beyond that, he said.
Fonterra had been in the US food service market for a number of years but had not been able to achieve scale in the number of businesses it sold to.
“By working with Land O’ Lakes, we will have access to a strong, well-established distribution network and their large customer base,” Harvey said.
Fonterra had previously been using a “traditional distribution model” in the US where it approached large food distributors such as Cisco and US Foods to sell its products to customers.
“We would then get them excited because we were a bit different but then we were struggling to convert all the way through that value chain because you need the power of people on the street.”
Land O’ Lakes had the ability to sell products to major US chains and regional chains which Fonterra “can only dream of accessing” on its own, he said.
“It would have been easy to give up on the US.
“This enables us to have a new model to create value for our shareholders going forward without some of those challenges and complexities that we have been dealing with in the past six or seven years.”
He would not give names or numbers of the types of businesses Land O’ Lakes would sell to.
The Fonterra products Land O’ Lakes would sell would complement the US co-op’s existing portfolio rather than compete with it, he said.
The cream cheese would be exported from New Zealand in 1 kilogram containers and the cooking cream would be made in the US using US farmers’ milk combined with a closely guarded secret dry ingredient formula Fonterra calls “the black box”.
Fonterra had invested significant research and development into the black box product and had intellectual property protections in place around it, he said.
“The black box is the magic.”
The special formula allows chefs to reduce cream in a few minutes, whereas normal cream could take up to 10 minutes.
It was also less likely to curdle when cooking or split when reheated from cold or frozen and had a unique formulation which allowed customers to use less.
Fonterra would be able to export products to the US using tariffs and quotas that were already available to it which it had historically not used, he said.
Harvey said it was difficult to determine what benefit the partnership would bring to Fonterra’s financial performance in 12 months’ time.
There would not be any job losses when the agreement began, he said.
Land O’ Lakes dairy foods vice president sales Greg Somerville said Fonterra’s “high performance” products allowed it to provide an expanded range to existing and new customers.