Arla Foods and German dairy company DMK have signed a third-party manufacturing contract that will see DMK produce 35,000 tons of mozzarella cheese for Arla per year at its Nordhackstedt site in northern Germany.

DMK is Germany’s largest dairy cooperative, with around 7,000 employees and processes milk at 16 sites throughout Germany and at two sites in the Netherlands.

As part of the agreement, DMK will rebuild its Nordhackstedt site to become fully focused on mozzarella production. This will increase the supply of whey for the two companies’ joint venture ArNoCo, which produces whey protein and lactose at a neighbouring site and at Arla’s site Denmark Protein in western Denmark.

Today DMK’s cheese site in Nordhackstedt has a capacity of approx. 70,000 tons, of which half is dedicated to mozzarella cheese. DMK will invest €15m to focus the entire capacity on mozzarella cheese by late 2018, after which they will initiate third party manufacturing for Arla.

Arla will supply 300-350 million kilos of milk for the production annually and will pay DMK to produce 35,000 tons of mozzarella cheese each year.

The two dairy companies collectively own the joint venture ArNoCo, which was established in 2011 at the Nordhackstedt site and since 2015 a state-of-the-art whey processing facility has been up and running.

As the mozzarella production at Nordhackstedt will increase, the site’s supply of whey for ArNoCo will go up as well.

“We are very pleased to sign this important manufacturing agreement that secures access to profitable raw material for our joint venture production at ArNoCo. It will also expand Arla’s strategic mozzarella business and our own production of whey protein ingredients as we continue to add even more value to our farmer-owners’ milk,” said Peder Tuborgh, CEO of Arla Foods.

“We are re-shaping our footprint for our German plants to produce in a more efficient way,” said Ingo Müller, CEO of DMK. “Next to this, we are optimizing our portfolio towards more value-creating products. This contract manufacturing agreement will enable us, to make a next step forward and to weatherproof DMK for the future.”

The new collaboration comes as a result of what Arla sees as an increased global demand for mozzarella cheese from both consumers and the foodservice industry. Arla Foods expects the European mozzarella cheese market to increase from 600,000 tonnes in 2017 to 720,000 tonnes by 2022.

“Arla is one of the world’s leading producers of mozzarella cheese, and with this agreement we aim to build on that position to continue to provide consumers and foodservice customers with quality mozzarella in Europe, Asia, USA and the Middle East,” said Tuborgh.