Dairy Crest has struck a strategic partnership with New Zealand dairy giant Fonterra for its £45m Davidstow whey venture.

It also announced today it would invest a further £20m at Davidstow to start producing galacto-oligosaccharide (GOS) – a lactose-based prebiotic used in infant formula.

Under the partnership, which will last a minimum of five years, Fonterra will sell and market the demineralised whey powder produced at Davidstow into infant formula markets around the world.  It will also market and sell the GOS made at Davidstow, which Dairy Crest will produce in a joint venture with ingredients manufacturer Fayrefield Foods, also announced today.

Commercial production of whey at Davidstow is set to start around April or May 2015; GOS production will commence later that year. Dairy Crest said it expected an eight-year payback on its £20m GOS investment.

CEO Mark Allen said whey and GOS were an important part of Dairy Crest’s strategy to add value. “We are excited to be working with Fonterra and Fayrefield Foods to bring these two innovative new products to market. These partnerships, with leading experts in the field, give us exposure to global growth opportunities.”

Fonterra CEO Theo Spierings said Dairy Crest had a strong reputation for quality, adding “we are delighted to have the opportunity to partner with them and provide our global customers paediatric ingredients made in state-pf-the-art facilities by a dairy company that shares our commitment to safe, high-quality dairy nutrition.”

Today’s announcements were welcomed by analysts Shore Capital, which said the partnerships were important strategic initiatives that would add value to Dairy Crest’s cheese business. It added it was “warming to the Dairy Crest story” despite the tough retail environment and concerns about the company’s doorstep delivery business.