From cans to cows, fizzy drinks maker F&N sees future in Malaysian dairy

Singapore beverage major F&N’s Malaysian subsidiary, Fraser & Neave Holdings, has given itself a two-year window to start dairy production as part of the first phase of a mega farm project in Chuping, which is set to initially become home to 4,000 cows.

“In the longer term, Ladang Chuping will be capable of hosting 20,000 dairy cows to produce 200m liters of fresh milk yearly, enabling the group with the capacity to export fresh milk​,” said chief executive Lim Yew Hoe last week.

The project will be rolled out over two phases at a total cost of RM850m (US$203m). F&NH hopes to get regulatory approval for its acquisition of 4,454-ha of leasehold land in northern state of Perlis in the next six months.

The company recently announced that its wholly-owned F&N AgriValley subsidiary had entered into a conditional agreement with MSM Perlis to acquire the land for RM156m (US$37m) to venture into upstream dairy and crop farming.

The company is banking on fresh milk to be a new pillar of growth. Occupying a segment worth some RM5bn (US$1.2bn), overall dairy consumption in Malaysia is not low, and per-capita consumption currently stands at 49 liters of milk a year.

The farm gate milk price in Malaysia is one of the highest in the world due to an inadequate supply of fresh milk locally. Besides that, imported milk comes with strict quota control, where a 20% import tax is levied on the product. The country’s dairy products are almost entirely made from imported milk powder.

“This is consistent with the low dairy self-sufficiency in Malaysia of 34 million liters, or 3%​,” Lim said, adding that fresh milk consumption is only a fraction of total dairy consumption.

F&N also hopes the integrated dairy farm will propel the sugary drinks manufacturer’s goal of becoming a major player in health and wellness, at a time when Malaysia—Asia’s fattest country—is taking baby steps towards becoming healthier. The country is beset by rocketing diabetes and heart disease rates.

Establishing dairy

Established in 1883 by John Fraser and David Chalmers Neave as the Singapore and Straits Aerated Water Company, F&N is now owned by ThaiBev and headquartered in Singapore. Fraser & Neave Holdings operates out of Kuala Lumpur.

It features a portfolio of 20 brands, including the massively popular 100Plus hydration drink, cordials and fizzy fruit drinks. It also markets condensed, evaporated, UHT and pasteurized milk. Currently, liquid milk only contributes a low single-digit percentage to the F&N's total revenue.

In an earlier announcement to Bursa Malaysia, the Kuala Lumpur stock exchange, F&N said it had entered into a conditional agreement to acquire the remaining lease rights of between 42 to 53 years to use the Ladang Chuping plantation.

“In line with the nation’s ambition to achieve fresh milk self-sufficiency, the proposed acquisition of Ladang Chuping to establish Malaysia’s first integrated dairy and crop farm is a significant step forward in the agricultural and dairy industry​,” said Lim.

"Consumers in Malaysia are deprived of affordable quality fresh milk, which is a basic goods in many countries. We believe that this is the kind of project that ticks off all the boxes for our country and stakeholders.​”

It will adopt a highly mechanized commercial farming model on the large contiguous land in Perlis. It is hoped in the future that the milk produced at the new dairy farm will supplement the raw materials needed for the manufacturer's existing lines of milk products.

The project will reduce F&N’s exposure to foreign exchange fluctuations, currency outflow from Malaysia and the uncertainties in importing fresh milk and feed, while achieving control over the quality of milk from grass to glass.

“A vertically integrated farm producing locally grown crops in-situ to feed the cows reduces carbon footprint, in addition to lowering the value chain cost per liter of fresh milk,​” Lim added.

Expansion potential

The first phase of the project will see the company import 4,000 milking cows with a potential output of 40m liters per year of fresh milk. Subsequent phases will begin once this is established.

In the longer term, Ladang Chuping will be capable of hosting tens of thousands of milking cows. The anticipated 200m liters of fresh milk they will produce each year will give F&N capacity to enter the export market.

Mature or post-lactation cows may well be passed on to feedlots for beef production—giving a boost to the government’s longstanding and heroically unsuccessful drive to make Malaysia self-sufficient in beef.

A fully integrated model being planned for the farm will include sustainable technology, including solar panel roofing for renewable energy and a biodigester system to convert waste into bio-gas. It also aims to repurpose solid effluent as natural soil nutrients.

Other than the milk processing plant, the integrated project will also feature a knowledge center for dairy and crop farming, and seedling research center.

“We aim to work closely with local dairy farmers and feed growers to improve productivity and quality through sharing of knowledge and skills in good farming and animal husbandry practices​,” Lim said.

R&D collaboration

F&N also intends to collaborate with academic institutions for research and development and provide internships and scholarships for university students specializing in agriculture, animal science and bio-security management. The goals is to boost the local talent pool to fill vacancies as the farm expands.

The company will also venture into ancillary businesses by bringing eco-tourism activities to Ladang Chuping.

The Ladang Chuping project announcement follows on the heels of the launch by the Malaysian government of its “dairy valleys” initiative​ across the country in a bid to jump-start the industry.

“The sustainable development of the local dairy industry will ensure Malaysians have access to high quality milk and create job opportunities for dairy farmers​,” said deputy agriculture minister Sim Tze Tzin in August.

“There are great opportunities for farmers to expand their business and increase their production to fill the gap in Malaysia’s dairy sector​.”