Fonterra deal "does not change A2/Synlait baby-milk JV"

a2's Australian listed shares surged 30% to $11.30 in the wake of the half year result and Fonterra deal.

A2 refers to the beta-casein proteins found in milk.

The deal means A2 Milk Company's fresh products will become more available in New Zealand and Australian shops.

A2 Milk says A1 and A2 proteins affect digestion differently, and its products may benefit people who experience discomfort from drinking cow's milk.

The company began selling a2-branded fresh milk in Singapore in the year, and is now making weekly shipments and considering broadening the product range in that country.

A2 revealed in its interim results release yesterday that it had formed a strategic relationship with Fonterra that would cover a wide range of supply, distribution, sales and marketing arrangements in some markets, saying it was a "significant development [for the company] given the wide-ranging nature of the relationship", helping it build its business in new markets.

In the first half, a2 settled a court case in Australia with its rival Lion Group over the science behind health-related claims about its milk.

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The aim is to build greater returns for both companies by growing demand locally and internationally using A2 Milk Company's increasingly popular brand strength.

The products will be produced at Fonterra's facilities in New Zealand as well as Fonterra's nutritionals facility, Darnum in Victoria, Australia.

Under the agreement, Fonterra would supply milk free from a protein that a2 says causes gut problems in some milk drinkers, while the diary cooperative would obtain exclusive sales rights into some markets in Southeast Asia and the Middle East up to a specific volume.

The two companies will explore opportunities for A2 branded butter and cheese, and a jointly-owned packaging factory. "Fonterra's high-quality milk pools, our global supply chain, our manufacturing capabilities and knowledge, and our in-market sales and distribution expertise is being combined with A2MC's brand strength to unlock new opportunities in a wide range of worldwide markets".

"An especially pleasing aspect of our performance was the continuing strong growth in market share and sales of a2 Platinum infant formula in China, along with our success in adapting to the evolving regulatory environment in that market", Mr Babidge said.

A2 Milk shares have soared after the company more than doubled its first-half profit and entered into an alliance with global dairy giant Fonterra to produce new products and expand into new markets.

  • Sonia Alvarado