The company announced on Friday an agreement to buy Melbourne-based secondary cheese-processing company Dairy Country for $19.23 million.

Dairy Country has done much of the shredding and grating of Fonterra’s retail cheese products, so this acquisition brings those function in house.

Fonterra Australia managing director Rene Dedoncker the acquisition would support Fonterra’s core strengths in the $2.6 billion Australian retail cheese category, where it holds a 23 per cent market share with key brands including Perfect Italiano, Mainland and Bega.

“Having this kind of capability in-house will enable efficiencies and allow us to make the most of opportunities for value creation and product innovation,” Mr Dedoncker said.

Dairy Country is owned by Queensland-based food and beverage company Retail Food Group Limited.

RFG executive chairman Peter George said Fonterra, as a key Dairy Country business partner, was a natural buyer for the business.

Dairy Country was no longer considered an appropriate fit with RFG’s strategy to focus on its core retail food franchising and coffee businesses.

“The transaction facilitates the company’s exit from foodservice and manufacturing pursuits, providing the group with a less complex business model,” Mr George said.

Mr Dedoncker said Fonterra has a long successful history with Dairy Country.

“This acquisition is a logical choice and further supports our strategy to be customer and consumer led, while ensuring we keep pace with the fast-growing cheese category in Australia,” he said.

“Dairy Country has two well-equipped secondary processing sites with capability across grating, shredding and block, as well as an experienced workforce.

“For some time we have been looking to bring more of our secondary cheese processing in-house to gain greater end-to-end control over a range of different cheese products and further strengthen our integrated supply chain.”

The acquisition includes Dairy Country’s processing and packing facilities at Campbellfield and Tullamarine in Victoria, along with related services, intellectual property and the trademark for the Dairy Country brand.

The majority of Dairy Country’s permanent employees will transfer to Fonterra and will continue to work at the Campbellfield and Tullamarine facilities.

The acquisition is subject to regulatory approvals and standard closing conditions.