Inner Mongolia Natural Dairy Co., Ltd, a subsidiary of China Youran Dairy Group Limited, has agreed to purchase Fonterra’s two farming-hubs in Ying and Yutian for NZ$513m (US$341m).
Separately, Fonterra has agreed to sell its 85% interest in its Hangu farm to Beijing Sanyuan Venture Capital Co., Ltd., for NZ$42m (US$28m). Sanyuan has a 15% minority shareholding in the farm and exercised its right of first refusal to purchase Fonterra’s interest.
CEO Miles Hurrell said in building the farms, Fonterra demonstrated its commitment to the development of the Chinese dairy industry.
“We’ve worked closely with local players, sharing our expertise in farming techniques and animal husbandry, and contributed to the growth of the industry,” Hurrell said.
“We don’t shy away from the fact that establishing farms from scratch in China has been challenging, but our team has successfully developed productive model farms, supplying high quality fresh milk to the local consumer market. It’s now time to pass the baton to Youran and Sanyuan to continue the development of these farms.”
Hurrell said the sale of the farms will allow the coop to prioritize areas of its business where it has competitive advantages.
“For the last 18 months, we have been reviewing every part of the business to ensure our assets and investments meet the needs of the coop today. Selling the farms is in line with our decision to focus on our New Zealand farmers’ milk.
“China remains one of Fonterra’s most important strategic markets, receiving around a quarter of our production. Selling the farms will allow us to focus even more on strengthening our Foodservice, Consumer Brands and Ingredients businesses in China.
“We will do this by bringing the goodness of New Zealand milk to Chinese customers in innovative ways and continuing to partner with local Chinese companies to do so. Our investment in R&D and application centers in China will support this direction.”
Completion of the sale, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to occur within this financial year.
Fonterra said it expects to use the cash proceeds from the two transactions to pay down debt, as part of its previously announced overall debt reduction program.