Arla Foods looks set to strengthen its presence in the Chinese dairy market and boost exports after signing a wide-ranging agreement with dairy giant Mengniu.
Under the agreement with Mengniu and China’s leading food and beverage firm COFCO Corporation, Arla has become an indirect shareholder of Mengniu Dairy Company – holding an approximate 6% interest in the firm.
COFCO is the single largest shareholder of Mengniu, holding a 20% interest in the company.
The deal, which involves an investment of DKK1.7bn ($290m, €230m), will effectively see Arla capture a 30% stake in COFCO’s 20% - or an overall 6% of Mengniu.
Arla may also nominate one director to the board of Mengniu through the investment, although it is yet to decide on who will fill the position.
Increase China exports
The firm has pre-existing links with Mengniu, having worked in partnership with the firm since 2005 on the sale of powdered milk. However, this agreement will offer Arla the opportunity to further develop its presence in China.
Arla Foods chief press officer, Theis Brogger, told DairyReporter.com that the Danish dairy cooperative is excited to play a major role in the development of Mengniu.
“We already have a good partnership with Mengniu in terms of milk powder. We have the same ambitions as Mengniu for dairy in China. They are a big player too,” said Brogger.
Under the agreement, the Arla brand will gain access to more sales and distribution channels in the country – offering Chinese consumers greater access to Arla products.
Arla expects turnover to increase five-fold by 2016 as a result of the agreement.
“We are very excited to play a role in the development of Mengniu. It has the potential to continue the growth rate shown in recent years,” he said.
The Danish cooperative has also confirmed that through the agreement, a China-Denmark Milk Technology and Cooperation Centre will be established.
The facility, which will provide expertise on milk quality, traceability and controlled milk production, has been backed by China’s Ministry of Agriculture and Denmark’s Ministry of Food, Agriculture and Fisheries.
“They will get expertise in milk quality, which China is ambitious to achieve. We have a quality assurance programme in Scandinavia which Mengniu is very interested in.”
Reports of tainted food, including dairy products, are common in China. Mengniu has not been immune to these scandals, suffering a drop in share price and sales as a result earlier this year.
Arla has not been fazed by this.
“We’ve been in the Chinese market through these periods. During this time, Mengniu has been one of the most responsible food firms in China with those issues,” Brogger added.
“We have good faith in the way they handled these issues.”
“That is something we noticed about Mengniu. When we decide to collaborate in the production of food, safety is the highest priority,” he concluded.