Science lures suitors of Aussie cheese maker

High-tech milk extracts | Food companies, including Saputo from Canada, are interested in the dairy manufacturer

SYDNEY, Australia (Reuters) — Food companies stalking Australia’s Warrnambool Cheese and Butter Factory Company Holdings Ltd. are lured by the firm’s high-tech milk extracts as much as its dairy produce.

The extracts are a core element in health-promoting products from premium infant formula to bone supplements. The extracts are poised for big growth as Asia becomes more affluent and diets change.

With the nutraceuticals market in the Asia-Pacific expected to be worth $80 billion by 2017, Warrnambool is sitting pretty. It is one of just two producers of the extracts in the only country in the region with the scale of spare milk capacity required to produce them.

Extracting just one kilogram of lactoferrin, a nutraceutical used in premium infant formula, takes up to 100,000 litres of regular milk.

“Critically, most of the countries responsible for the surging demand in Asia can’t produce milk themselves,” said Michael Harvey, dairy analyst at Rabobank. “They need countries like Australia that have a surplus of milk to export.”

Australia has been producing milk below capacity for years following soaring feed costs and a supermarket price war that pushed farmgate prices to record lows. The country has the capacity to add around two billion litres to the nine billion litres of milk it currently produces each year, exporting about half.

For its part, Warrnambool has almost completed construction of a $14 million Aus plant to make lactoferrin. The only other producer of the nutraceutical in Australia is major shareholder Bega Cheese Ltd. — the company that started the bid war for Warrnambool.

Previously little known outside its home base, the 125-year-old company has attracted three takeover offers from Bega, fellow shareholder Murray Goulburn Co-operative Co. Ltd. and Canada’s Saputo Inc. since September. Saputo’s bid is the highest at $449 million.

Warrnambool’s market value has nearly doubled to around $470 million as investors snapped up shares. Those buyers include Fonterra, the world’s largest dairy exporter, and Japanese drinks maker Kirin Holdings Co. Ltd. The duo has bought stakes in Bega and Warrnambool, respectively, and are hovering with intent to influence consolidation.

The global market for nutraceuticals is expected to grow to $205 billion by 2017 from $142 billion in 2011, according to U.S.-based market intelligence agency Transparency Market Research.

The Asia-Pacific region is expected to account for 39 percent of the global market by 2017, or about $80 billion, making it the second-largest market after North America.

Lactoferrin illustrates the appeal of nutraceuticals, which fall short of pharmaceuticals but have demonstrated physiological benefits, providing protection against chronic diseases such as cardiovascular illnesses. Dubbed “white gold” by Australia’s media, it fetches $1,000 per kg because of the vast quantities of milk used to make it.

Warrnambool, which relies on exports of traditional dairy produce for most of its A$500 million in annual sales, said it had signed its first deal to supply lactoferrin in Asia.

The three-year sales agreement with Taiwanese marketing and distribution firm Toong Yeuan Enterprise Co. Ltd. for lactoferrin in China, Hong Kong and Taiwan is worth $24 million.



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