Many other ingredient or food companies like Purac are increasingly looking at estabilishing production in markets with cheaper labour costs, such as Asia or Eastern Europe, in order to maintain their margins.
"If Purac maintains her present manufacturing footprint, production cost of lactic acid will be too high to have a competive offer to the market," Mirko Creyghton, CSM's director of communications, told AP-FoodTechnology.com.
"Producing at low cost is a must, therefore production of lactic acid will take place at the most efficient production locations in Thailand, Brazil and the US."
Lactic acid, a natural organic acid present in milk, meat, and beer, is used extensively by the food industry as a flavouring agent, preservative, and acidity adjuster in foods.
Purac will partly fund the new plant in Thailand, due to become operational in 2008, with money from the sale of another factory in Ter Apelkanaal, the Netherlands.
The company will also cease the production of lactitol in two other factories, one located in the Netherlands and the other in Spain.
According to a company statement, the asset write down is expected to range between €40m and €55m, depending on the sale price for the Ter Apelkanaal plant.
"The price of lactose, the raw material for lactitol production, has increased 300 per cent, which is causing a demand for sustitutes from our clients," Creyghton said, explaining that this massive cost increase meant that manufacturing lactitol in Europe is unfeasible.
Instead, the company will focus on producing lactic acid derivatives and lactides, often used in the bio-plastics industry, at these plants.
About 160 jobs will be lost, Creyghton said, but this number could decrease if buyers are found for the facilities in Ter Apelkanaal.
He also claimed that the company is maintaining a "good relationship" with the unions.
Although CSM announced in August that its margins increased during the first half of 2007, profits were affected by Purac margins decreasing to 6.9 per cent from 8.9 per cent in the same period last year.
CSM said at the time that they had increased prices but still could not cover the rising price of raw materials, costing the company €7m.