As Nestlé Mexico announced plans to invest 700 million pesos (about $53 million) over the next six years to increase milk production in Mexico, the European dairy cooperative Arla said it is taking an ownership position in Brazil’s Vigor.

Nestlé, the international food giant based in Switzerland, said in a statement today that its investment is part of ongoing efforts to build close links with dairy farmers around the world in order to better understand the practical problems that affect their businesses and, ultimately, Nestlé’s over the long term.

Under the commitments announced, Nestlé Mexico will invest 400 million pesos ($30 million) to finance production and infrastructure. Another 300 million pesos ($23 million) will be invested in providing technical assistance in the milk and whey supply chains in Mexico. Mexico is one of around 30 countries globally where Nestlé buys milk directly from producers. Nestlé Mexico is the country's third biggest milk buyer and the company has been buying milk directly from dairy farmers in Mexico since 1935.

Arla takes an 8% share ownership of Vigor, Brazil’s largest dairy company

Since 1986, Arla has been in a 50/50 joint venture with Vigor under the name Dan Vigor. In 2013, Dan Vigor reached a gross revenue of €36 million ($46.3 million). Under the new agreement Arla will exchange the joint ownership of Dan Vigor for an 8% share ownership of Vigor, Brazil’s largest dairy company. Arla will become a voting member and an observer in Vigor’s Board of Directors.

“The new agreement with Vigor is similar to the one we have with Mengniu in China – only this time it hasn’t been necessary for us to find additional funding. Vigor is one of Brazil’s leading dairy producers with a first class distribution network. We have a history of excellent cooperation and it’s a natural step for us to further build on this partnership to explore the great potential in Brazil,” says Finn Hansen, Head of Arla’s international markets.

According to an Arla statement today, Brazil is the world’s fourth largest dairy market with an overall annual growth of 5%. With a population of 200 million and a growing middle class, Brazil holds significant dairy consumption potential. Arla’s ambition is to accelerate its export of products to Brazil to get a share of the growing demand for imported brands in the dairy market.

Part of the agreement with Vigor is for Arla to drive the creation of a new business unit within its operation, with a new commercial executive officer. The unit’s focus will be on the marketing and sales of imported products and brands, which will be distributed through Vigor’s channels.

Vigor’s main products are powdered and condensed milk, dairy, and spreads

Vigor is listed on the Brazilian stock exchange and had revenues of 6.2 billion DKK (about $1.1 billion) in 2013. It has more than 6,000 employees and 14 factories in Brazil. Vigor’s main product categories are powdered and condensed milk (36%), dairy (36%) and spreads (14%). Vigor is partly owned by the world’s largest food processing company, JBS S.A.

Sources: Nestle, Arla