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NZ's water attracts Chinese dairy investment

Chinese investment in the New Zealand dairy industry is partly about the export of water, DairyNZ chairman John Luxton says.

His comments come as the debate over such investment flares again as Chinese companies want to build two dairy factories in New Zealand, one for baby formula and the other for milk processing. The deals are worth more than $400 million combined.

The proposals need Overseas Investment Office approval, but NBR ONLINE readers have already given their verdict.

In today's print edition of the National Business Review academics are warning the consequences of New Zealand losing control of the quality of sucn an imporant commodity as milk could be "dire".

Today, Mr Luxon – a former agriculture minister – told NBR ONLINE New Zealand has huge volume of water available for agriculture, which is something China struggles with.

"In industries, particularly protein-producing industries at the upper end of the market like dairying and meat, New Zealand is an obvious choice for sourcing a lot of that production," he says.

New Zealand's total renewable water resources per capita is 36 times that of China, according to 2011 figures from the United Nations' Food and Agriculture Organisation.

Canterbury dairy processor Synlait Milk is already 51% owned by one of China's largest dairy companies, Bright Dairy.

'Dire' consequences

University of Waikato Professor Jacqueline Rowarth warns it could be "dire" if New Zealand loses control of its milk brand by having offshore companies produce dairy products and process milk powder here for export.

In the National Business Review today, Ms Rowarth describes as “idiocy” Fonterra building farms in China while Chinese companies build factories in New Zealand.

“If there’s more milk than can go into the processing plants, why isn’t Fonterra building more factories here?”

Lincoln University Professor of farm management and agribusiness Keith Woodford told NBR ONLINE New Zealand has been slow to capitalise on the processing and packaging of UHT milk in NZ for export to China to be sold in supermarkets there.

Fonterra is only starting to do this now with their brand Country Goodness, he says.

"I think it is likely that we will therefore see Chinese companies fill the gap by themselves by setting up UHT processing factories in New Zealand.

"The Chinese companies are not interested in firing a shot across the bows of Fonterra.

"They are doing what they are doing because they think they can position themselves to make future profits.

"Only time will tell whether they have got their strategy right."

More by David Williams

Comments and questions

If they didnt ruin there own water sources they wouldn't need us.

Right on, Jaqueline. Pity more Fonterra shareholders didn't support you in your stand to get on the Fonterra board.

If NZ is rich in water then why are we not selling it in the products I.e. clean, green and fresh?
It makes no sense to take add cost by taking the water out to make low added value products like powder.
Fresh cultured dairy foods have everything going for them: why don' t we do it?
NZ , of all countries is best equipped to produce fresh milk year-round from free-range pastured cows with best practice animal welfare.
Are we going to wait for Fonterra to wake up?
It might never happen.

the reason water is taken out of the milk is because fresh liquid milk is perishable. That is why there is no trade of liquid milk, hence fresh milk must always be sold domestically. This is particularly the issue for NZ, being so far from everyone else

You missed the point. I said cultured dairy products, not fresh milk.
The shelf life of cultured dairy products like yoghurt, cottage cheese , sour cream, fancy cheeses etc , is more than adequate to reach all of Asia.
And then there is ice cream.
See the point?
We could be leaving all the water in the product and selling it: not incurring cost to take the water out , and producing a low value commodity.

Profit is only a very minor motivation for Chinese because investing in the NZ dairy industry. Their principal driver is access to advanced knowledge and operational capabilities that can be transferred back to China eventually. Handled well that provides NZ with significant future opportunities; handled poorly mainly via poor engagement, this is indeed a threat and this is the way it is heading currently.

It is all about profit! well as technology and securing future food supplies from products which consume water to produce in an ever drier world. It would be much better for NZ to have the milk powder factories situated in NZ which create economic activity and Jobs rather than the factories being built abroad. For example the Heinz factory in Hastings is prime example of an industry which creates a multitude of jobs. Exporting raw milk for China to process is not advantageous as it is the primary form with no added process and value. Exporting the milk powder is better provided it is not sold in bulk but sold packed and in tins, labled and "branded" as NZ as well.

This is imprrtant for the future growth of the economy and the farming industry for NZ. We need to create added value to farming products which create jobs, Kiwi Brands and wealth for NZ.

Mark Kenyon-Slade
Cape Town
South Africa