New Zealand dairy cooperative makes fresh drive into China

Sep 17, 2010, 11:14 GMT

Wellington - New Zealand's giant dairy cooperative Fonterra Cooperative Group Ltd renewed Friday its push into China, the world's fastest-growing market for milk products, signing an agreement to establish two farms east of Beijing.

Fonterra China managing director Philip Turner said the new properties would be located in Hebei province's Yutian county, about 115 kilometres from the coop's first Chinese farm, established in Hebei in 2007, which produced about 25 million litres of milk from 5,800 cows imported from New Zealand in the past fiscal year.

'By investing in two further farms, we are building on our commitment to build a safe, secure and sustainable milk supply for our customers in China,' Turner said.

Fonterra's first foray into China in 2005, buying a 43-per-cent stake in the San Lu dairy company, ended in a disastrous scandal three years later when the Chinese partner was involved with a number of other companies in producing infant milk powder tainted with the industrial chemical melamine.

Six babies died and another 300,000 were reported sick after drinking contaminated locally produced milk. San Lu's boss was jailed and the company collapsed.

Fonterra wrote off its 107-million-US-dollar investment, the biggest ever by a foreign dairy company in China, and vowed it would insist on total control of local milk in any further venture.

Turner said Fonterra's first Chinese farm had shown it could produce high-quality milk at good volumes profitably.

While Friday's agreement confirmed the final stage of due diligence for the new farms, Turner said there were 'still some critical issues to be resolved' by the Yutian government before the deal could be finalized.

Turner said China was set to become the world's largest dairy market in the next few decades and double-digit annual growth was forecast over the next 10 years.

'The Chinese government has acknowledged that the development of the dairy farming industry is not only crucial for meeting the growth in demand but also for developing rural communities and their livelihoods,' he said.

Fonterra, a cooperative owned by nearly 12,000 New Zealand dairy farmers, is the world's biggest single exporter of dairy products, selling 2 million tons annually to more than 100 countries.