August 11, 2017

Fonterra-Beingmate partnership persists despite challenges

Beingmate, the Chinese investment partner of Fonterra, has announced the selling of dairy farm assets as it anticipates a $70 million loss in the first half of 2017, Stuff reported.

The company - with its shares having dropped 10% - is currently suspended from trading as it faced allegations of insider trading.

Nevertheless, this setback is unlikely to break the Fonterra-Beingmate partnership for now, in spite of the weaknesses some observers have seen in the tie-up.

In 2015, Fonterra obtained a 18.8% share in Beingmate with a $700 million investment. The move would allow the former to access the infant formula market in China, although doubts were cast over the potential success between both companies. Dr. Andrew Zhu of Trace, a consumer research firm, described the relationship as a "big mismatch" as Chinese consumers are wary of the Beingmate brand.

"For people in the first and second tier (Chinese) cities, it's not a brand they consider. It's aimed at the lower end of the market," Zhu commented.

Still, the partnership avails Fonterra a direct channel to China's infant formula market and an "extensive distribution and sales network", a Fonterra spokesman said. Additionally, Fonterra Australia's Darnum plant produces nutritional base powders for Beingmate, which are currently shipped to China.

Fonterra was also aware of the "challenging conditions" that the highly fragmented Chinese infant formula industry operates under as infant formula registration is undergoing a protracted transition.  

Despite the hurdles, registration for Beingmate's five factories were "all on track".

Recently, Beingmate informed the Shenzhen Stock Exchange that it would create the subsidiary, Beingmate Anda Dairy Company - which controls dairy farms in China's Heilongjiang province - to improve earnings.

After losing money in 2016 due to low global prices of raw milk, the subsidiary has since picked up.

 - Stuff