Royal Numico plans to partially outsource its base milk powder production in order to focus its production platform on higher value-added ingredients.
The company says that by outsourcing its operations at its plant in Macroom, Ireland to Dairygold Co-Operative Society, it will also be able to ensure that the desired quality and food safety standards are upheld.
"The Macroom factory was operating at maximum capacity," Numico chief communications officer Michiel Quarles told FoodNavigator.
"We were looking at the best way forward, and decided that the best strategy was to expand our capacity in the Ireland factory and look for a partner.
"If we had done this ourselves it would have taken us a lot longer to get the full capacity out the factory. Dairygold on the other hand can use this capacity, and sell some of the powder elsewhere."
Under the agreement, Dairygold will acquire the manufacturing plant in Macroom - including the transfer of all employees - and will enter into a long-term contract arrangement to manufacture and supply base milk powder to Numico.
The transaction is expected to be completed in the fourth quarter of 2006.
The move comes after the Dutch infant food and nutrition firm reported full-year double-digit growth for the first time, driven by strong sales in Eastern European and Asian markets deflect rising costs.
The maker of Milupa baby food saw operating profits rise 11 per cent to 1.37bn, bolstered by strong international sales, but costs rose 27 per cent since 2004 as the company suffered rising commodities and fuel prices.
The company clearly hopes that by focusing on higher-added value ingredients, it can build on its key strengths.
Dairygold Co-Operative Society is Ireland's largest farmer owned food company and multi-purpose agribusiness. Its range of business includes among others dairy processing, liquid milk production.
Dairygold employs approximately 2,000 people and has an annual turnover in excess of 870 million.
Royal Numico is a specialised nutrition company with leading positions in baby food and clinical nutrition. The company serves customers in over 100 countries and employs approx. 13,500 people.