Dairy farm fund Southern Pastures LP, which took a quarter stake in Lewis Road Creamery last year, will link with Westland Milk Products as a supplier from the 2018/19 season and with plans for a high-value product joint venture. Separately, Westland cut its forecast milk payout for this season.
Southern Pastures and Westland signed a letter of intent where the dairy farm investor's nine Canterbury farms will supply an extra 4 million kilograms of milk solids to Westland from 2019, and investigate a business case for a 50/50 joint venture to create products from free-range, grass-fed milk based on strict animal welfare, health, sustainability, climate change and human rights standards.
"The objective to supply free-range, grass-fed milk will not be restricted to the Southern Pastures farms," Westland chair Pete Morrison said in a statement. "Any Westland shareholder who can meet the standards required will also be able to supply and take advantage of the additional income that results."
Last October, Southern Pastures took a 25 percent stake in Lewis Road Creamery to support the premium dairy company's export aspirations. If the Westland joint venture goes ahead, Southern Pastures would supply some of the milk produced at those Canterbury farms into Lewis Road products.
Westland said the tie-up will have an immediate benefit for the Hokitika-based company, with Lewis Road becoming a "significant new customer" for grass-fed milk produced.
Southern Pastures executive chair Prem Maan said the fund wants to boost its exposure to premium markets where consumer demand is based on values rather than simply the cost.
"We foresee massive disruption in the lower value commodity markets from the likes of synthetic proteins and factory farming," Maan said.
Southern Pastures will become a Westland shareholder, choosing the country's second-biggest dairy cooperative because of its recent turnaround, board restructure and focus on nourishment as opposed to commodity products.
"Our advisers have calculated that our move will add to the Westland payout from the very first season providing a real economic fillip to the region," Maan said.
Separately, Westland joined other dairy processors in downgrading its forecast payout for the current season to between $6.20-and-$6.50 per kilogram of milk solids, from a previous range of $6.40-to-$6.80/kgMS.
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