Fonterra buys stake in Chinese dairy race

By Chris Mercer

- Last updated on GMT

Related tags Milk

The New Zealand dairy co-operative has bought a 43 per cent stake
in one of China's biggest dairy processors, as the world's dairy
giants scramble for position in one of the most promising markets.

Fonterra said it paid €91.4m (US$107m) for its stake in the Shijiazhuang San Lu Group, one of the largest investments ever made by a foreign dairy firm in China.

The deal, if passed by Chinese competition authorities, will give Fonterra access to San Lu's extensive distribution network, covering more than 600 cities.

The New Zealand firm will also benefit from San Lu's strong reputation for high quality nutritional milk powders, modern milk processing facilities and popular fresh dairy products.

San Lu, meanwhile, believes letting Fonterra in will help it to benefit from the co-operative's expertise in research and development and business; also this year cited as the reason a number of Chinese brewers have entered into deals with western beer giants.

"Fonterra is an acknowledged leader in dairy production with extensive management experience, world-class RandD teams and advanced marketing skills,"​ said San Lu chairwoman Tian Wenhua.

The move should also keep Fonterra ahead of the pack as the world's dairy firms tussle for chunks of China's blossoming dairy market.

"Over the past 20 years, Fonterra has been the number one exporter of dairy ingredients to China,"​ said Fonterra chief executive Andrew Ferrier. "We have been impressed by the spectacular growth in consumer demand for dairy products."

Others have been impressed too. French dairy giant Danone recently opened its first Asia-based research and development centre near Shanghai, at a cost of €2.5m.

And Scandinavian dairy group Arla Foods recently began a joint-venture with China's leading dairy firm, Mengniu, to supply milk powder to Chinese consumers. It said China had the world's largest market for these products.

Again, Arla talked of the quid-pro-quo nature of the deal, demonstrating Chinese firms' keenness to use the technical expertise of foreign firms.

"We have the necessary know-how with regard to added value milk powder products and our partner has an excellent distribution and sales network,"​ said Jais Valeur, sales director for Arla Foods Ingredients.

Chinese consumers currently get through much less dairy than their Asian counterparts in Japan, Korea and Taiwan, but consumption is rising strongly. Fonterra's Ferrier said this could reach 30-40kg per person in a decade.

China still has the lowest milk consumption per capita in the world - around two litres per year.

Yet, the country's milk sector has grown by an estimated 188 per cent over the last five years, according to market research group Euromonitor​, with sales of UHT and long-life milk far outstripping those of fresh milk.

Related topics Markets Fonterra Consolidation

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