Open Country Dairy's next decision on processing expansion is close, as a waiting list of more than 500 farmers press to supply.

The world's second-largest exporter of wholemilk powders and New Zealand's second- biggest dairy processor is understood to make its major capital investment decisions around May every year.


The Waikato region is thought to be on directors' minds.


Known as a canny, cautious investor which values capital highly, the privately owned company is majority-controlled by Motueka's Talley family.


It could decide to take a year's breather, given a major extension at its Whanganui plant is just nearing completion, with commissioning due in August.


But with its milk processing volume now at 1.45 billion litres a year, all three of its plants understood to be booked out for supply next season, and farmers openly discussing that they are on a lengthy waiting list to supply, it seems more likely that directors will give the green light for more stainless steel investment.


In the Waikato, where dairy farmers are particularly vocal about wanting to supply the 10-year-old processor, the board could opt to expand its foundation site, Waharoa, ahead of building a greenfield plant at Horotiu where land is available next to the Affco meat processing plant. Affco, headquartered at Horotiu, is also majority-owned by the Talley's Group, which has wide food interests.


Expansion at Open Country's big Southland plant, Awarua, is likely to be off the table for a while, given a recent four-stage multimillion dollar capital investment there.


It will be a balancing act for Open Country's leaders in deciding whether to invest millions of dollars in more stainless steel for spring 2016 in response to expressions of farmer interest.


While farmers say they are lining up to join a company which, unlike the co-operative Fonterra, does not require them to buy shares to supply milk, experience shows a lot of keen chatter does not always translate into contracts when the stainless steel goes up.


But for all those on a waiting list whose interest fades at crunch time, an equal number have typically come out of the woodwork.


What type of product will maximise the return on investment will also be on directors' minds when making their mid-year decisions over stainless steel capacity.


The Auckland-headquartered company makes milk powders, milk proteins, milk fats and cheese for customers in the US, Europe, Africa, Middle East, Asia and the Pacific. A move into cream production or more milk fats may be considered.


Chairman Laurie Margrain is typically keeping the company's thinking close to his chest, but has previously indicated that investment in North Waikato stainless steel is on the table.


Open Country does not discuss supplier numbers for commercial reasons, but it is understood the company now has about 760, with some large farms among recent recruits.


The company reported a record $29.8 million profit for the 12 months to September 30, from $18.2m in a 14 month period the previous year.


It changed its balance date from July 31 in 2013.


It paid suppliers $8.41/kg last season.


Open Country Dairy started life as the tiny Open Country Cheese venture at Waharoa in 2004, with two suppliers and processing two million litres of milk a year.


Founded by former National cabinet ministers Wyatt Creech and John Luxton, with Duncan Milne, Jim Bentley and Frank Dunlop, Open Country Cheese was the first privately owned cab off the rank when dairy exporting was deregulated in 2001 and a mega-merger of co-operatives created Fonterra.

By 2007, wholemilk powder exporting was its main business. Talleys had acquired a majority stake and the company became Open Country Dairy.


The Awarua wholemilk powder plant went up in 2008, followed by Whanganui a year later.


Today, Talley's Group owns 69 per cent of the company, with Singapore's Olam holding 15 per cent and Dairy Investment Fund the third-largest shareholder with 7.6 per cent.


Andrea Fox

 - Stuff.co.nz

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