Hundreds of thousands of 250ml teat capped plastic bottles filled with Whakatu spring water are being shipped out from Napier Port to allay the fears of Japanese mothers concerned about radioactivity in their own water.

The lucrative contract to supply quality spring water with nutritional additives will soon be followed by fruit juices, then UHT treated infant formula and pet milk, mainly bound for lucrative South East Asian markets.

The products originate from the production lines at the gleaming new $66.2 million Etika Dairy processing plant at the Whakatu industrial park.

The factory, designed to add value to Hawke’s Bay dairying and horticultural industries, is the brainchild of food and beverage entrepreneur Neil McGarva, in partnership with Singapore-based Etika International, and a handful of committed local investors.

After 12 years as a food safety auditor in Auckland, McGarva – a Whakatu old boy – established specialised baker Pandoro Panatteria with his sister Kaye and husband Richard Tollenaar, in 1992.

Do you do pet milk?

Within a decade his next venture, The Natural Pet Treat Company, was exporting quality dog tucker around the world, and the Japanese in particular were asking, did they also offer pet milk?

On inquiring, McGarva found nothing produced locally and few options on the international market. It was clearly a good niche to get into, but not without significant investment to produce quantities that made commercial sense.

Etika process engineer Yong Zhang and managing director Neil McGarva.

As he investigated he found the same UHT bottling and processing equipment could be used in other niche areas, for example no one was producing lactose free milk. “As a dairying nation you would have thought we would have cottoned on to that, but Fonterra and others were too focussed on their core commodity business.”

He took on a group of investors for the pet milk project, but still other ideas were brewing in his mind. He’d heard about milk for baristas that retains its froth, even after use, but this was only available offshore and in a tetra carton. The ideas kept coming; flavoured milks, fruit juices, energy drinks, but this would require an even bigger production facility, with higher capacity and more start-up capital.

Vital ingredient found

While doing the rounds in 2008, McGarva met with Naturalac Nutrition Ltd (Horleys) managing director Richard Rowntree and asked about producing protein drinks for the sports nutritionist.

Rowntree suggested Singapore-based Etika International, which had acquired his company in 2006, might be interested in a joint venture. A year later the deal was sealed for local subsidiary Etika NZ to take a 60% shareholding, creating Etika Dairies.

Etika International is a major distributor of dairy and beverage products throughout South East Asia. “Without Etika we wouldn’t be here,” says McGarva.

Early investors, uncomfortable moving beyond the pet milk plan, sold their shares, leaving only husband and wife team Neil Pulford and Claire Vogtherr holding the majority of the Hawke’s Bay end. They were joined by local businessmen John Thompson and Doug Leyser to complete the 40% local shareholding.

Claire and Neil made their investment six years ago, based as much around the original pet milk plan as their faith in Neil McGarva’s vision and drive.

The element of risk was part of the excitement that kept Claire and Neil on board and despite the changing specifications, they knew his venture had to be good for the Hawke’s Bay economy.

Says Vogtherr: “We knew we were in for a long and interesting journey. Neil is very dynamic in his thinking; he’ll find new technologies and markets and move with that — we were comfortable moving with him.”

Capacity commitment

The entrepreneurial couple put up the capital to invest in the plant equipment, while McGarva sought a major cash injection to move the project forward. “At one stage we thought we’d lost it and the ride had come to an end,” recalls Vogtherr.

That would have meant selling off the assets to get their investment back. But then the deal with Etika came through, and there was a sigh of relief all round.

McGarva is confident that even if no one else took his product Etika would find an outlet. “We already have strong interest from China and Japan who view New Zealand as a safe place to source food which means our product can attract a premium.”

The main output will be contract manufacturing for Etika Group along with bottling pet milk, flavoured milk, soy milk, milk-based energy drinks and liquid meals, fruit juices and standard UHT milk for third party labels.

There’s an imminent announcement of a major partnership with a “leading New Zealand dairy company” which will take half the current capacity for product for the local market. A technology sharing relationship with Fonterra is perhaps a clue to what lies ahead.

Etika Dairies is projecting revenues of $20 million in its first year and planning to ramp up capacity from 6,000 bottles an hour to 30,000 during the second year. This will require a second much larger blow moulder.

All boxes ticked

That’s why the 1.6 hectare site at Whakatu industrial park was chosen. “Properties like this are rare so we just had to grab it — it ticked all the boxes,” says McGarva.

As there’s a lot of waste from the processing plant it needed a trade waste capability, 360 degree truck access, high quality water and access to a good port … only 20 minutes away.

To run a boiler to generate steam, it also needed to have access to the gas mains, which is much cleaner than diesel or electricity and about one-third of the cost.

The factory, which began production in October, will be the first in the world producing UHT liquid infant formula in a bottle with a teat cap. The patented teat cap comes through Australian company Poppet International.

The concerns about water in some parts of the world mean powdered milk has to be reconstituted, so marketing infant formula with local water provides confidence and value.

The bottles used by Etika Dairy have an enhanced gas and UV light barrier to ensure the content remains stable for 12 months without the need for refrigerated distribution and storage.

The UHT process is the same as that used by Tetra Pak for its UHT milks, and while it’s slightly more expensive, the bottles Etika Dairy is using are resealable, re-useable and recyclable.

Bottling it up

The Etika bottling plant can mould any type of bottle from concept through to finished product within weeks. The lactose free and re-frothable barista milks will be delivered in the old Kiwi retro 1litre milk bottle shape.

Whey protein is used as scaffolding in the barista milk so the foam holds, and unlike fresh milk it can be re-foamed after use. The lactose free variant is naturally sweeter and doesn’t need sugar.

“A cappuccino is 80% milk so this is an alternative to soy milk for the lactose intolerant and they’ll come in shelf stable bottles so you use less fridge space.”

While Hawke’s Bay only produces 150 million litres of milk a year that’s more than sufficient for the needs of Etika Dairy.

The factory will also be an outlet for local growers and pack houses for non-export grade juicing product, mainly apples and some kiwifruit, although McGarva is open to feijoas, pears or cherries as a frozen ingredient to blend.

Hawke’s Bay fruit growers typically only have a few months when they produce in volume and their quotas for juicing are quite small. “I can process six tonne of fruit an hour,” says McGarva.

An opening for Bay

The deal with Etika International had already been done before Prime Minister John Key signed the ASEAN free trade agreement in 2010, and opens the way for further mutually beneficial business.

“This is so good for Hawke’s Bay,” enthuses Etika Dairy shareholder Claire Vogtherr. “With all the trouble in America and Europe we have to align ourselves and the future of the region and our country with South East Asia.”

She believes the Whakatu plant is just the beginning. “Etika has a lot of subsidiaries and their job is to feed people in Malaysia, Vietnam and across Asia. We need to be asking what else can this region produce that these people want to eat, even things we haven’t thought of yet.”

Given the right indicators she believes Etika could make much greater investment. “We have the capacity in Hawke’s Bay to replicate what we have done at Whakatu by processing different food products.”

Vogtherr says the Hawke’s Bay Regional Council’s water harvesting plans have been “immensely valuable” to the plans of Watties and McCains, and suggests a capacity study is needed to better gauge what the region can deliver in the way of high value added exports to South East Asia.

On declaring the Etika Dairy processing plant open on 1 September, Prime Minister John Key agreed that if Hawke’s Bay wanted locals to be better paid, it needs to achieve higher returns for its goods rather than being a vulnerable commodity trader just riding above the exchange rate.

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