The investment underlines the strategic approach to enhance its capacity, as well as supporting Malaysia’s health and security food agenda

by SHAZNI ONG/ pic by TMR

FRASER & Neave Holdings Bhd (F&N) has identified production and sale of fresh milk as a new pillar of growth, as it aims to become a major domestic producer of fresh milk at a significantly lower cost.

The company announced its plan last month to invest RM650 million to establish Phase 1 of its vertically integrated dairy farm in Chuping, Perlis, as part of its strategic goal of becoming a leading total beverage and dairy producer in the Asean region.

F&N CEO Lim Yew Hoe (picture) said the investment underlines F&N’s strategic approach to enhance the group’s capacity, build a sustainable liquid milk supply chain and support Malaysia’s health and security food agenda.

“The integrated dairy farm will propel the group’s ambition of becoming a major player in the health and wellness segment, with fresh milk as its new pillar of growth. Our main objective is to help increase the nation’s self-sufficiency level and offer quality and affordable fresh milk,” he said at a briefing in Kuala Lumpur yesterday.

The reduction in the cost of raw fresh milk in Malaysia, which is currently among the highest in the world, will boost consumption of fresh milk by offering a broad portfolio of affordable and healthier dairy products, he said.

When fully completed, the 4,454ha farm will produce 200 million litres of fresh milk and up to 5,000 heads of livestock annually.

Currently, the country’s total dairy production level is less than 40 million litres with self-sufficiency at only 3% in 2015, according to the Department of Veterinary Services.

“Local fresh milk is inadequate. Our farm gate price is one of the highest in the world. Imported milk is controlled by strict quota. If the quota is given, a 20% import tax is levied. With strict quota control, we often go from ‘hand to mouth’,” Lim said.

The combination of the above factors means consumers in the country are deprived of affordable quality fresh milk, a basic good in many countries, he said.

Global price per litre ready-to-drink (RTD) milk is RM4.20 per litre, while in North America and Europe at RM3.50, Australia RM5.10 and Malaysia between RM6 and RM10.

“At RM5 billion value, overall dairy consumption in Malaysia is not low. Malaysia is one of the highest per capita markets in the region. Dairy products consumed are almost entirely made from imported milk powder. This is consistent with the low dairy self-sufficiency in Malaysia of 34 million litres or 3%,” he said, adding that fresh milk consumption is only a fraction of total dairy consumption.

F&N will explore the upstream insourcing of fresh milk to support existing downstream production and distribution of fresh milk products.

“This will allow the group to achieve self-sufficiency in the supply of locally produced fresh milk, thus reducing dependence on imported milk and providing Malaysians with a choice of nutritious and affordable fresh milk and dairy products,” he said.

F&N’s mega farm will house 20,000 dairy cows with mature cows or post-lactation cows passed on to feedlot producers for meat purposes.

F&N plans to allocate over 3,000ha of land in Ladang Chuping for crop farming with excess feed sold in the local market, Lim said.

The fast moving consumer goods player intends to make fresh milk more affordable and offer school children quality fresh milk at below RM1 per 200ml pack, according to Lim.

Lim said the company is allocating RM450 million for capital expenditure in 2020.

“We will use it for land acquisition (in Chuping) worth RM156 million, for an integrated warehouse in Shah Alam (RM180 million) and investment in Thailand,” he said.

Lim noted that the overall domestic food and beverage market would remain challenging amid the continuous competitive pressures in the canned milk and RTD beverage segments.

Lim said F&N’s Thai operations to remain positive given the strong brand equity and product portfolio supported by the group’s pipeline of innovative products.

F&N’s shares closed 0.68% or 24 sen higher at RM35.30, valuing the company at RM12.95 billion.