Fonterra milking China potential

WELLINGTON: The world’s biggest dairy exporter, New Zealand’s Fonterra, is to spend around NZ$100 million (RM251.9 million) to expand its farming operations in China, the co-operative said yesterday.

Fonterra said it would commit to developing two new large-scale dairy farms in Hebei province as part of its plan for an integrated milk business in China using locally produced milk.

Fonterra has moved directly into farming in China after an earlier venture involving state-owned Sanlu collapsed in 2008 following revelations that Sanlu’s baby formula was contaminated by the chemical compound melamine.

“Our intention is to develop separate farming hubs across China, with the ultimate goal of producing up to one billion litres of high quality milk every year by 2020,” Fonterra chief executive Theo Spierings said.

He said Fonterra was planning initially for five farms, producing a total of 150 million litres a year. “An integrated business all starts with a safe, high quality local milk supply,” he said.

Fonterra, a co-operative owned by around 10,500 New Zealand farmers, controls around a third of the world’s dairy exports and has global sales of around NZ$20 billion (RM50.4 billion) a year.

The Chinese government wants to triple annual milk output to 90 million tonnes by 2030, which means global dairy giants such as Fonterra and Nestle are investing in milk supply.

Fonterra also announced further steps in its planned scheme to allow its shareholders to trade among themselves, along with the formation of an associated investment fund.

Local brokerage Craigs Investment Partners has been appointed as the market maker, ensuring sufficient transparency and liquidity.

The scheme, due to start in November, will enable its farmer members to trade the co-operative’s shares among themselves. Under the current system, Fonterra buys and sells the shares.

Fonterra said Deutsche Bank, UBS, and Goldman Sachs would join Craig Investment Partners as lead managers.

The internal share trading scheme is designed to reduce the financial pressure on Fonterra’s balance sheet to allow it to fund its overseas expansion.

Final approval of the share trading scheme and an associated listed-investment fund, based on the dividend flow from some Fonterra shares, is due around July.