Fonterra is eyeing up dairy-farm opportunities in other Chinese provinces as it pursues an aggressive offshore growth strategy.
The dairy giant, New Zealand's largest company, announced yesterday it will spend $100 million building two more large-scale dairy farms in China's Hebei province, where it already has two farms operating and another being built.
To produce one billion litres of milk by 2020 - its stated goal - it will have to build more than 25 farms, clustered in "hubs", and spend more than $1 billion, whether alone or with other companies.
Speaking to NBR Online from Yutian county, where Fonterra's second Hebei province farm opened yesterday, Fonterra general manager of international farming Peter Moore says construction of the two new feedlot farms will hopefully start this year.
They will be built in tandem and hopefully open early in 2014.
"This is really about taking what was one farm in 2007, we've just opened the second one, now this is about generating a much bigger milk pool in China," Mr Moore says.
"We are looking at other provinces. We're looking at the five-to-six farm as being a hub in a province.
"That's not to say we wouldn't have more than one hub in some provinces, but it's more likely that we will have hubs in a number of provinces over time."
Like its latest farm, Mr Moore says the two new ones will milk around 3200 cows, with about 2000 supporting stock, and produce about 30 million litres of milk a year.
Mr Moore says there might be further expansion in Hebei province, within different counties, because of its proximity to Beijing, adequate water supply and plentiful maize feed.
Asked if there would be announcements of farms being built in other provinces during this financial year, Mr Moore replies: "We're working on that but I certainly couldn't give you a firm timeline on when we're likely to announce where we would go next, but we're certainly looking at the next options.
"If we want to accelerate in China we can't continue like we have been - one farm a year - we need to be building two or three a year and also looking at diversity in other provinces.
"At this stage, we're still in the early stages of investigating where we will go next and what we will do next."
Fonterra's grand target for China is to produce "up to" a billion litres by 2020, on predictions that dairy consumption will double in China by 2020.
By comparison, Fonterra process 14 billions of milk each year in New Zealand, which is predicted to rise to 22 billion litres by 2020.
Fonterra's expansion plans come as the World Bank has cut China's GDP growth forecasts for the year from 8.4% to 8.2%. Last month, the company posted an increased half-year profit.
Melamine crisis
Why did it take five years for Fonterra to open its second farm in Hebei? Part of that, at least, might be explained by the 2008 melamine crisis.
Sanlu, a company part-owned by Fonterra, was implicated in the contaminated milk scandal, in which six children died and hundreds of thousands became ill.
Since 2008, China's milk production has flattened, while overall dairy consumption has taken off.
Fonterra already exports $1.8 billion of whole milk powder a year to China.
Fonterra seems to be putting melamine behind it and is hoping Chinese consumers do the same. It's mantra is now "high quality, safe food".
The New Zealand co-operative's Chinese farms are different to its sprawling, low-cost, pasture-based New Zealand farms.
They are feedlots, as seen in the United States, with huge barns housing thousands of animals, over about 40ha.
Another big difference is ownership - or lack of it.
Mr Moore says Fonterra has a 50-year lease for one parcel of land, which has key buildings such as the office block and accommodation, while it rents the rest, negotiated on six-year, 12-year or 18-year terms.
"You can't own the land but certainly the leases are very, very secure for the length of the 50 years."
How important is China to Fonterra? Mr Moore says it is "one of the critical paths".
"China is not just a country, it's a huge continent, almost. There is massive population growth and growth in wealth so people are looking for high-value products."
David Williams
Fri, 13 Apr 2012
Fri, 13 Apr 2012
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Aggressive Fonterra eyes even more Chinese expansion
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