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Abbott and Fonterra to join forces in widespread China expansion

By RJ Whitehead , 14-Jul-2014

Abbott and Fonterra to join forces in widespread China expansion

A US-based infant formula major and New Zealand’s biggest exporter have joined forces to build up to five dairy farms in China to secure supply for China’s newfound voracious appetite for dairy products.

The strategic alliance between Abbott and Fonterra, which is now in the hands of Chinese regulators, will draw on the Kiwi company’s expertise in dairy nutrition and farming in China, and Abbott's long experience business of development in the country.

"This would be Fonterra's third farm hub in China and will complement our existing farming operations in Shanxi and Hebei Provinces that have been very successful," said Theo Spierings, Fonterra’s chief executive. 

"Farming hubs are a key part of our strategy to be a more integrated dairy business in Greater China, contribute to the growth and development of the local Chinese dairy industry, and help meet local consumers' needs for safe, nutritious dairy products.”

Combined investment

Miles D. White, Abbott’s chairman and chief executive, called the alliance “a very important step” in the company’s China operations. Fonterra currently sees Abbott as a wholesale client of its milk powder products.

Both companies will work with the country’s regulators to obtain necessary approvals through the course of the project's development.

If approved, Abbott and Fonterra will form a joint venture to invest a combined RMB1.8bn (US$300m) into the farm hub, which will contain up to five dairy farms and more than 16,000 dairy milking cattle producing up to 160 million litres of milk each year. 

Animals will either be imported or sourced from Fonterra's existing farm hubs. All dairy cattle will have genetics traceable to New Zealand, Australia, the United States and Europe.

With Chinese consumers increasingly concerned about the safety of the products they buy, Fonterra and Abbott will be hoping to trade on their international reputations and standards.

Pending regulatory approval, the first farm is expected to be completed and producing milk in the first half of 2017, and the remaining farms will commence production in 2018.

Dairy ups and downs

Abbott, which is in the process of expanding its production capabilities in China, and Fonterra have a long history in China and have made substantial commercial and social investments in the country.

However, both companies were hit late last year when batches of Fonterra’s whey protein concentrate were suspected of containing traces of a botulism-causing agent.

The subsequent recall led Abbott and Danone, another competitor, to take their own products off the market in some Asian countries, with Abbott saying its first-quarter figures were hit to the tune of US$75m. 

The scare ultimately turned out to be a false alarm amid a market that is quickly turning into a prized territory for multinational milk companies, who are keen to tap into the new and growing trend among the Chinese middle-class for cheese, milk formula and other dairy products..

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