Surplus skim milk powder may be destined for China

Date:2011-11-14zhuling  Text Size:

Mississauga- A group of eight Chinese investors is poised to buy up Canada’s “structural surplus” of skim milk powder to export as baby formula.

婴儿配方奶粉David Reynolds says the group is investing $62 million to build a 100,000-square-foot plant in Scarborough that will employ 355 people to make 30,000 tonnes per year of baby formula for export to China and perhaps India and other far-Eastern countries.

He said the company expects to have sales of $33 million a year. It chose Canada, despite its world’s-highest prices for milk, because of the country’s reputation for quality.

There is strong demand in China, where there is a one-child policy, for top-quality infant formula. Many Chinese who can afford expensive food prefer Canadian products because they have been scared by Chinese food-industry scandals, including repeat cheating to put melanine in milk to boost protein-content test results.

Reynolds, who is president of INAC Services Ltd. and has decades of experience in dairy-industry global trading, said this deal will increase Canadian dairy-farmer incomes by $31 million a year. That’s the difference between the price of skim milk powder marketed as animal feed and what the Canadian Dairy Commission can sell this company as Class 5(b) milk.

“Why Scarborough?” Reynolds asked when he spoke to the semi-annual meeting of Ontario Agri-Food Technologies Inc. here. “Why not Vancouver, which would be closer to China?”

“Because they (the investors) live in Scarborough,” he said.

Gord Surgeonor, chief of staff at Ontario Agri-Food Technologies, said he was first approached about this venture, mainly because Canada does not export dairy products and runs a highly-protective supply-management system.

But Surgeonor said he has been convinced this is a legitimate venture that will “in no way affect supply management.”

Canada’s structural surplus of skim milk powder arises out of a supply-management policy of balancing production and sales on a butterfat basis.

When dairy farmers are marketing just enough butterfat, there is too much skim milk left over and it’s processed into dry powders which are then “dumped” as animal feed because countries will not take dairy exports from Canada. That’s tit-for-tat because Canada has set dairy-product tariffs so high that nobody can export to our markets.

One of the challenges for the investors is to convince Canada to call the infant formula a dairy product so it can qualify to be imported into China.

However, failing that, Reynolds said the investors will start marketing in India where there is no similar import restriction.

Among the Chinese investors are All City Importers, Hei-longjiang Dragon Food Ltd. which owns large dairy farms, Dairy Farms International Holdings, which owns a super-market chain and the Chinese rights to IKEA and Wahaha Foods, a bottler marketing infant formulas under 100 different brands and annual sales of $16 billion.

Reynolds said there are $5 billion worth of infant formulas sold in Southeast Asia per year and demand is increasing by 12 per cent per year. There are 150 million middle-class Chinese now and that’s projected to increase to 1.7 billion in eight years, he said.

India will have an even greater increase in middle-class income earners, he said, and in eight years India and China and neighbouring countries will have 42 per cent of the world’s middle-class income earners, he said.

He said this company, and others like it, could benefit from Canadian partnerships and mentors. “We should be modeling with them, helping them with things like building permits,” Reynolds said.

Surgeonor said the company filed for a building permits six months ago and is still waiting for Scarborough’s approvals. “It’s frustrating!”

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