Chinese farm agreement will complete dairy ‘hub’ - Fonterra

02-Nov-2012 - Last updated on 02-Nov-2012 at 12:30 GMT

Fonterra has signed an investment agreement with Chinese authorities to develop two more large-scale dairy farms – the latest step in the firm’s strategy to build a sustainable fresh local milk supply in the country.

Through the agreement with officials in Yutian County, two farms housing around 3,350 cows each will be developed. The facilities will complete Fonterra’s ‘hub’ of five farms in the Hebei province of China.

Once fully operational, the new sites will collectively produce up to 65m litres of milk a year, according to Fonterra.

The New Zealand-based dairy processor expects the Hebei five farm ‘hub’ to produce a total of 150m litres a year once fully operational.

Sustainable Chinese supply

“The demand for dairy in China is expected to double by 2020 and much of this growth will be met from local production. We need to build a safe, sustainable local milk supply to feed this growth,” said Fonterra Greater China president, Kelvin Wickham.

“Today’s announcement completes our first farming hub in Hebei Province. Once fully operational, it is expected to produce around 150m litres a year. We intend to follow this farming hub with several more through China, with the ultimate goal of producing up to 1bn litres of high quality milk by 2020.”

Fonterra expects to break ground on the farms in December 2012, and hopes to be operational by October 2013.

The herds will be made up of cows bred at Fonterra’s existing Hebei dairy farms, and supplemented by around 4,300 cows shipped from New Zealand.

Chinese market commitment

Initial plans to develop the latest Hebei-based farms were announced earlier this year. Speaking at the time, Fonterra CEO Theo Spierings reiterated its commitment to further Chinese market development.

“We have a long history in China and we are committed to the further development of the local Chinese dairy industry. We want to establish an integrate milk business in China that processes high quality milk from Chinese farms into dairy nutrition for Chinese customers and consumers,” said Spierings.

In March 2012, Fonterra launched its Group Strategy Refresh, which outlined its emerging market approach.

The firm vowed to “build and grow beyond current consumer positions” – pinpointing emerging markets including China as areas of potential growth. The New Zealand-based processor also highlighted the importance of selective investment in milk pools, including “stage-gate investment in additional China farms, through partnerships.”