Bloomberg News

Affco Forms Dairy Unit, Plans to Sell Surplus Sites (Update2)

March 12, 2007

Affco Holdings Ltd., New Zealand's largest publicly traded meat processor, formed a unit to invest in the country's growing dairy industry.

Dairy Trust Ltd. will buy three of Affco's surplus plants in the country's Northland, Wanganui and Waikato regions to develop for milk processing, Affco Chairman Sam Lewis said in a statement. Other investors are being sought for Dairy Trust, which will buy a fourth site in Southland in its own right and is likely to sell shares publicly next year, Lewis said.

New Zealand is the world's biggest dairy exporter and accounts for about 40 percent of the global trade in butter, cheese and milk powder. Prices are at records after drought in Australia cut production there and as the development of snack and health foods increases demand for dairy-based ingredients.

``We're in the food business and our major shareholder is in the food business,'' Lewis said in a telephone interview. ``It's just a natural place for us to be.''

Shares in Affco, half owned by Motueka-based Talleys Fisheries Ltd., rose 1 cent to 37 New Zealand cents at the 5 p.m. close of trading in Wellington.

Profits at the Hamilton-based Affco have fallen 78 percent the past two years as the high New Zealand dollar cut export returns and the company had to pay more for stock to slaughter.

Affco will be a long-term investor in the dairy industry and should be able to provide more details on its plans within the next three weeks, Lewis said. He wouldn't say how much Dairy Trust will pay for the company's sites.

Rival Producers

New Zealand's dairy industry is dominated by Fonterra Cooperative Group Ltd., which processed about 14 billion liters (3.7 billion gallons) of milk last year, 95 percent of the country's production.

Still, sheep and beef farmers converting to dairying are seeking other markets for their milk rather than be required to buy shares to join Fonterra.

New Zealand Dairies Ltd. will be able to process as much as 850,000 liters of milk a day when its plant opens near Waimate on the country's South Island this year, Rural News reported last month. Synlait Investments Ltd., operator of the country's largest dairy farm, is expected to start an NZ$80 million ($55 million) milk processing plant near Dunsandel next year.

Dairy Trust doesn't have any milk supply agreements in place and it's too soon to say what mix of products it will make, Lewis said. Further feasibility work is required and development of the sites will be staged once Dairy Trust is capitalized, he said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net

To contact the editor responsible for this story: Reinie Booysen at rbooysen@bloomberg.net


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