Food industry update

Related tags Milk Nestlé

As part of a strategy to withdraw from basic commodity processing,
Nestlé announced this week it will sell its Australian milk power

Fonterra, a New Zealand-based dairy company, will take over the collection of milk from about 420 farmers in Victoria State and acquire Nestlé's milk factory in Dennington. The transaction will be completed by the end of July 2005.Under the agreement Nestlé Australia will buy a range of powdered milk products from Fonterra.

Nestlé​ said it will also restructure its Tongala milk factory in Victoria, cease milk powder production there and continue to manufacture only liquid milk products. Both transactions will result in a number of redundancies,the company said.

Nestlé has already sold its basic milk powder plants in large parts of Latin America, as well as in several European countries, or brought them into a series of joint-venture operations with Fonterra.In the Netherlands, Nestlé's Gorinchem powdered milk factory was sold to Dutch entrepreneur, Jaap Vreugdenhill, effective 1 June 2005.

The factory, with a workforce of about 140 people, produces milk powder, mainly for export Asia, Oceania and Africa. Nestlé will continue to source part of its semi-finished milk powder requirements for export from the Gorinchem unit and about 1000 farmers will go on supplying milk to the factory.

Nestlé also said it will proceed with its previously announced intention to begin a share buy-back programme of up to €652m (Sfr1bn) during the second half of this year and the subsequent cancellation of the repurchased shares, assuming shareholder approval.

Vita Food makes management changes ​As part of a move to recover flagging sales in its seafood and specialty divisions, Vita Food Products has promoted Clifford Boland from his position as chief financial officer to chief operatingofficer.

Vita Food makes kosher salmon products and markets salad dressings, honey and condiments. The management changes follow Vita's poor results for the first quarter of this year. The company's sales declined in both ofits salmon and honey business segments and in every major product category within the segments.

Sales in the seafood segment fell by nine per cent compared to the 2004 first quarter. Sales in the specialty foods segment fell by 16 per cent. Sales fell in all product categories including salad dressing.The company registered a loss of $257,000 in the quarter, compared to a loss of $38,000 in the same period of 2004.

After the management changes analysts J.M. Dutton Associates​ raised the company's rating to "speculative buy"from "neutral", stating that its analysts believe the company's sales will improve during the rest of the year.

Demand for herring is growing at between three to five per cent a year due to the consumer's increasing acceptance of ethnic foods in general and for kosher products in particular, Dutton said.Meanwhile the per-capita consumption in the US of salmon has increased by about 2.5 times from 0.69 pounds in 1995 to 1.82 pounds in 2003, mainly due to the influx of cheaper product from Chilean fish farms.

From 1995 to 2004, imported fresh-filleted Atlantic salmon from Chilean fish farms has increased 12 times, to 176.3m pounds from 14.6m pounds . The value of the imports increased to $361.1m from $36.2m during the nine-year period.

"The dramatic increase in imports of low-priced farmed salmon from Chile has stimulated a significant increase in the domestic per-capita consumption of salmon products,"​ Duttonsaid.

Dutton noted that about 91 per cent of the company's sales are to large regional retail food and warehouse club chains. These customers are among the top 25 supermarket chains in the US and generateabout 60 per cent of the retail food industries US $386bn in sales. The company's two largest customers represented 35 per cent of its net sales in 2004.

"An important off-balance-sheet asset of Vita's is its distribution pipeline,"​ Dutton said in a report issued this week after the management changes. " Over the years, Vita has established a nationalnetwork that is now comprised of 60 food brokerage firms and 30 wholesale distributors. Five Company regional sales managers support the brokers and distributors and service the house accounts. The distributors generate half of thecompany's sales."

Boland will assume most of the operational responsibilities of board chairman Steve Rubin. In addition, the company has hired William Zaikos as vice president of marketing. Prior to joining Vita Foods, Zaikos held numerous positions withKraft Foods where he managed $100 million in product sales.

American Dairy buys milk powder plant in China ​American Dairy said yesterday it has purchased a milk powder processing plant in China from Royal Numico, boosting its daily production capacity by about 60 per cent, or 274 tonnes of raw milk a day.

The company said it expects to increase sales revenues by $7m and earn an additional $1.5m in net profits from the Numico plant during the 2005 financial year. The $7.3m purchase was made throughAmerican Dairy's China-based subisidary, Heilongjiang Feihe Dairy Industry. This milk processing plant acquisition also includes 19 raw milk collection stations.

American Dairy conducts operations in China through its wholly owned subsidiary, Feihe Dairy. Feihe Dairy is located in Kedong County, China, and has been in operation since 2001. American Dairy also has a milk powder processingplant in QiQiHaEr, Heilongjiang province.

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