The world’s largest food firm -- Nestlé -- and the world’s largest dedicated dairy producer -- Fonterra -- have announced plans to establish a joint venture in Chile that will manufacture and distribute cheese, cream, butter, yoghurts, fruit juice and margarine.
The new company will be part of the firms’ existing Dairy Partners of America (DPA) joint venture and is to be called DPA Chile. Nestlé and Fonterra will each take a 50% stake in the unit and the distribution and marketing muscle of the two companies will put them in a strong position to build dominance in the dairy products market, which is growing strongly and unlike some other food and drink sectors in Chile, is not showing any signs of maturity.
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DPA has been operating for eight years and currently operates sites across Brazil, Venezuela, Argentina, Colombia and Ecuador. The partnership has proven to be very successful, with Fonterra’s expertise in dairyfarming and milk processing making it the ideal partner for Nestlé, with its huge portfolio of dairy based consumer goods.
In counties across Latin America consumption of meat is high but per capita consumption of dairy products is low in comparison to North America and Europe. Consumption is currently constrained by insufficient distribution facilities and the fact that milk farming remains one of the most archaic and fragmented industries in the region’s agricultural sector. However, the gradual consolidation of the sector, combined with the modernisation and marketing programmes being pursued by firms such as
The industry in Chile is also set to be supported by our strong forecasts for economic growth. In all global markets there is a strong correlation between income levels and consumption of dairy - with products such as yoghurt purchased infrequently by low- and middle-income consumers. Despite signs of saturation in some sectors, such as soft drinks and beer, the amount that Chilean consumers spend on food and drink is still expected to grow strongly from a regional and global perspective, with rising affluence driving consumers to trade upwards to higher-priced products and spend more on items previously viewed as non-essential, such as yoghurt and cream.
Given the importance of Chile for both Nestlé and Fonterra as a regional export hub, we would not be surprised if this deal were to be extended further across the region, with the companies’ operations in Peru also likely to benefit from the two firms working together.
