Fonterra is set to increase investment in producing butter and cream cheese as consumers continue to struggle with rising supermarket prices.
This is part of a $1 billion growth investment following the announcement of a record payout, dividend, and $26 billion revenue for the financial year ending in July.
Currently under construction are a $75 million advanced protein hub at the Studholme site, additional cheese storage facilities at Whareroa, and a $150 million new UHT cream plant at Edendale.
The said projects are expected to be finished within a year.
However, this is unlikely to offer much reassurance to shoppers hesitant about butter prices in supermarkets, which are largely driven by global demand.
Grocery prices increased by nearly 5% in the year to August, according to Statistics NZ’s latest data, with much of the rise attributed to higher costs for milk, cheese, and butter.
The average prices of the cheapest options were $4.72 for two litres of milk, a 16.3% increase; $12.89 for a kilogram block of cheese, up 26.2%; and $8.58 for a 500g block of butter, rising by nearly 32%.
On the international market, butter prices reached a peak of around $13,870 (US$7,992) per tonne at the co-op’s Global Dairy Trade auction in May.
Since then, prices have eased, except for a rally in July, reaching approximately $11,960 at the auction on September 16.
“We will put stainless steel into clearly what value-add products are important to us. You will see more investment in butter. We think there is a strong future in butter, and we have talked about some cream cheese capacity, and we also see a future with continued growth in cream cheese globally,” Fonterra chief executive Miles Hurrell said.
He mentioned that demand is likely to increase for pastry sheets containing butter, as well as for croissants and other baked goods.
Demand for cream cheese is growing in China, driven by its use in baked cheesecakes and as an ingredient for frothy toppings on macchiato tea, coffee, and even beer.
Hurrell said cream cheese is an expanding category as around 500 million of China’s 1.3 billion population join the middle class.