In March 2002 the two firms signed the Dairy Partners Americas (DPA) alliance, aiming to secure cost competitive supply of fresh milk and milk ingredients and to create strong positions in chilled and liquid milk businesses. Today they source 2 billion litres of fresh milk a year. The announcement this week extends their reach.
"Nestle is less and less interested in the transformation of raw materials and more and more interested in the marketing of branded products," Marcel Rubin, a spokesperson for Nestle tells FoodNavigator.com.
In light of rising global raw material prices, the company's step away from the low-margin transformation end and towards higher-margin finished brands could lead to considerable gains.
We set up the alliance in order to co-ordinate our activities in the milk business. Milk processor giant Fonterra, at the raw material end, is in the oppositie position to Nestle, hence the alliance, explained Rubin.
In January last year the two giants started ventures in Brazil, Venezuela and Argentina, as well as creating a DPA regional management team. Part of the agreement included the sale of Fonterra's milk powder businesses to Nestlé in Venezuela, various countries of Central America, the Caribbean, Dominican Republic and Peru.
The latest alliance announced this week and kicking off in July 2004 sees a joint venture for the manufacture of basic milk powders in Ecuador and Colombia, a link up for the manufacture, marketing, sales and distribution of dairy chilled and liquid products in Ecuador, and a dairy chilled and liquid joint venture in Trinidad & Tobago.
Soaring milk prices are currently knocking food and ingredients companies in the US. After years of slumped prices, the dairy industry has rebounded with record prices for cheese and near-record prices for milk and butter, due primarily to reduced milk production.
In the UK the National Farmers Union earlier this month welcomed the decision by the UK government to pay the additional payment element of the forthcoming dairy premiums as a straight top-up. The agreement on the reform of the CAP last year made provision for a direct payment to be made to dairy farmers - that handle approximately 2,336,000 dairy cows - to partially offset the reduction in EU support prices.
NFU Dairy Board Chairman Gwyn Jones said: "The dairy sector remains disappointed at the reform implementation for England and we have concerns about how this will impact on the sector. However, the NFU welcomes this decision as a straightforward, common-sense approach."
The Holstein Friesian is responsible for producing around 95 per cent of the 14,581,000,000 litres of milk that are produced in the UK every year. The remaining five per cent of milk produced comes from other cow breeds including Ayrshires, Guernseys and Jerseys.
In February this year the milk co-op Milk Lin, and major Irish processor Glanbia agreed on a deal to create a new joint venture processing company.
The merger sees the producer co-op move further along the track of vertical integration, towards processing most of its own milk directly, or through joint ventures.
"It is important that the new venture builds on this to move the business in a positive direction towards more value added products, which in turn will help producers combat the pressures experienced in commodity markets in the future," commentedNFU President Tim Bennett at the time.