WELLINGTON (Reuters) - New Zealand's Fonterra Dairy Co-operative plans to procure a key ingredient used in infant milk formula from Britain's Dairy Crest, a person familiar with the matter said, in a move that will allow it to cut production of low-margin cheese.
The agreement to purchase demineralised whey will also help the world's largest dairy exporter boost infant formula shipments to China after it was banned from exporting whey products there in the wake of a food safety scare last year.
An agreement will be announced later this week, the person said.
A Fonterra spokesman declined to comment.
Fonterra is keen to reduce its output of natural cheese, which has been less profitable due to record-high raw milk prices, but the world's largest dairy exporter needs large quantities of demineralised whey, a byproduct of cheese-making, for infant formula.
The deal with Dairy Crest would be the latest effort by Fonterra to look to other companies to source whey. It has another tie-up with Netherlands-based A-ware Food Group to process whey powder from the Dutch company's cheese manufacturing operations.
The farmer-owned co-op controls roughly a third of global dairy exports, mainly in bulk ingredients such as milk powder. But it has been shifting production to higher margin products including bulk and branded milk formula.
(Reporting by Naomi Tajitsu; Editing by Edwina Gibbs)