Fonterra’s foodservice business has hit $3 billion in annual revenue and the dairy giant aims to move more of its milk into the higher value products.
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SUPPLIED Fonterra is developing new products like tea macchiato and cream cheese lollipops for its foodservice customers in China.

The foodservice business, which supplies bakeries, tea houses, coffee shops, restaurants, convenience store chains and supermarkets with specialist dairy products, was started in 2013 and Fonterra aims to grow its revenue to $5b by 2030.

Fonterra plans to invest about $1b by 2030 to move its milk into higher value products as it looks to grow profits in an environment of flat or declining milk volumes. Last year, the co-operative earned almost three times the profit margin from foodservice than from its ingredients business.

“Foodservice is a high value channel for our farmers’ milk and a key part of our long-term strategy,” said Fonterra chief executive Miles Hurrell.

The co-operative aims to increase the volume of milk solids used in its foodservice business 50 per cent by 2030 and grow its presence across Greater China, Southeast Asia and the United States.

Foodservice is a US$2.3 trillion (NZ$3.3t) global market where Fonterra competes with international rivals like Nestle and Danone as well as local operators in each country.

In China, Fonterra has set up application centres where it tests innovations like cheese lollipops and tea macchiato with its Chinese foodservice customers, using the resources of its research and development hub in Palmerston North.

Over the past year the co-operative has introduced more than 100 new applications in China and demonstrated 170 new applications for its bakery customers.

To grow sales further, it plans to expand deeper into the larger cities in China, and branch out to Southeast Asian countries like Indonesia and Malaysia where western foods and bakeries are becoming more popular.

Fonterra’s director of global foodservice Paul Harvey said the co-operative aims to add as many as 40,000 new customers over the next five years, and up to 70,000 new customers in the next 10 years.

The co-operative faces tariff barriers in many international markets, and to get around those it is increasingly looking to commercialise its intellectual property which will help it grow in wealthy markets like the US and Europe.

Last year Fonterra struck a deal with US dairy co-operative Land O’ Lakes to sell its dairy products to hospitality businesses and major fast food chains throughout the country. The deal enables Land O’ Lakes to make Fonterra’s specialty cooking cream from local milk and Fonterra’s secret dry ingredient formula sent from New Zealand.

In this week’s dairy segment, That’s Farming, speaks to Evan Walsh, a farmer from Offaly. He discusses split calving, calving heifers at 24-months, using 100% AI, zero-grazing, achieving 600-700kgs of milk solids and expansion plans.

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