April 13, 2012

 

 

Fonterra is expected to increase its milk production in China by around 20-fold for 2020 to fulfil a "strong push" into emerging markets launched recently.

 

Theo Spierings, the Fonterra chief executive, said that the co-operative had an "ultimate goal of producing up to 1 billion litres of high quality milk every year by 2020" in China, to help meet demand expected to double by then to more than 70 billion litres.

 

The production target compares with the 11 million litres being produced at the Fonterra's Yutian Farm One site, which Mr Spierings officially opened on Thursday, and the 25 million-litre output from the initial farm, Tangshan, according to 2010 data.

 

However, Mr Spierings, revealed a succession of expansion plans to tap into a Chinese consumption expected to grow by 7% a year.

 

On top of a third site, already in construction, he said that Fonterra would invest NZD100 million (US$83 million) in two further farms.

 

All five sites are sited within Hebei Province, in north eastern China, creating a so-called "hub" which will have a herd size of about 15,000 milking cows, producing 150 million litres of milk a year, "and all near a large market like Beijing".

 

And Fonterra's "intention is to develop separate farming hubs across China", Mr Spierings said, adding that the group was "committed to the further development of the local Chinese dairy industry.

 

"We want to establish an integrated milk business in China that processes high quality milk from Chinese farms into dairy nutrition for Chinese customers and consumers."

 

The comments come two weeks after he unveiled plans for a "strong push" into emerging markets to prevent New Zealand-based Fonterra being marginalised by the slow growth expected in its domestic dairy market.

 

Chinese demand for milk is expected to grow by 7% a year, compared with expansion of less than 1% in developed countries.

 

Indeed, even with investment by Fonterra and other groups, with China Mengniu Dairy unveiling development plans last month, China will not become self-sufficient in dairy by 2020, Fonterra said.

 

Separately, Fonterra - which collected 15.4 billion litres of milk from New Zealand farmers last year, equivalent to 89% of domestic production - also unveiled the appointment of financial advisors for the launch of an internal market in its shares, which will allow farmers to buy and sell amongst themselves.

 

Deutsche Bank/Craigs Investment Partners, Goldman Sachs and UBS were named "joint lead managers" on setting up the system, called Trading Among Farmers, for launch in November.