Infant formula maker Bubs Australia (ASX:BUB) is working with a subsidiary of cheese giant Bega to make goat milk infant formula directly from fresh Australian goat milk.

Bubs told investors this morning of a new strategic supply partnership with Tatura Milk Industries, a subsidiary of $1 billion Bega, which makes cheese, Vegemite, peanut butter, dips, mayonnaise, salad dressings and more.

Bubs and Tatura will work together to convert fresh goat milk directly from the farm gate into infant formula in one step, without an intermediate spray dry to whole milk powder along the way.

Nutritional wet blending of raw milk with other ingredients, such as higher levels of prebiotics to aid digestion and omega-3 DHA and omega-6 ARA, followed by spray drying, will take place at Tatura’s facility and is then canned at Australian Deloraine Dairy, Bubs’ CNCA-accredited manufacturing partner.

Bubs shares rose 4 per cent on the news, opening at 59c.

Bubs Australia (ASX:BUB) shares over the past year.

Bubs recently reported its 2019 half-year results, which showed it made more money in the six months to December 31 than it did for the entire 2018 financial year.

The company has products available in supermarkets and pharmacies in Australia, as well as a presence on e-commerce platforms in China, which an expert recently told Stockhead were two crucial steps in growing a dairy formula company.

Bega chief Paul van Heerwaarden said his company was excited to help Bubs achieve its growth ambitions.

“We have been working closely with Bubs to develop an infant formula of the highest integrity and quality aimed at satisfying the increasing demand for both goat milk formula and a product that can be genuinely positioned as Australian,” he said.

Kirsty Carr, Bubs founder and CEO, said reaching scale allowed it seek out partnerships.

“Being able to produce our goat infant milk formula in a single step directly from farm gate is an ‘Australian first’ for goat dairy, that is only made possible because we have exclusive ownership of fresh goat milk from the largest milking goat herds in Australia,” she said.

“The one-step nutritional blending and conversion of our own exclusive goat milk supply by Tatura will bypass the intermediate step delivering a fresher product, an improved nutritional and taste profile, and better solubility when made up for consumption.

“Importantly, the one-step conversion generates a number of critical efficiencies for Bubs: the production and ingredient cost are significantly reduced, making the new production method margin accretive. As well, production lead times are cut, and so inventory is better managed and cashflow is improved.”

Trials have been completed successfully and commercial production is expected to begin in March.