Fran O'Sullivan: Chinese-NZ venture ready to milk it

Bright Dairy's campaign is expected to reach 200 million people over its six-month run. File photo / Thinkstock

Chinese political counsellor Cheng Lei told an interesting story yesterday to illustrate just why New Zealand-sourced infant formula will find a ready market in China.

Cheng says all the staff at the Wellington Chinese Embassy are basically "acting as agents" for Karicare Nutritional Milk.

"Each staff is sending 100 cans of Karicare back to China each year."

The diplomatic staff - and their families - are among the many Chinese nationals in New Zealand sending such products home so anxious parents have trusted formulae to feed their babies and by doing so have already created a brand presence for "safe" New Zealand milk products in China.

Over the next six months New Zealand's reputation for safe, high-quality infant nutritional products will be boosted as Shanghai's Bright Dairy rolls out a major advertising campaign in China (in Shanghai - then elsewhere) to launch "Canterbury Pure" infant formula in the Chinese market.

Bright, which has 51 per cent of Synlait Milk, owns the branding for Canterbury Pure.

It advertising campaign is expected to reach 200 million people over the six-month period.

The cans, which retail at $80 each, have pictures of the Southern Alps overlooking the Canterbury Plains.

The Chinese blurb promotes the need to invest in your children and invest in your family - "the return comes back to you".

Promoting "Pure New Zealand in a can" also has the potential to deliver good financial returns here.

Synlait Milk's Chinese adventure has the potential to be an extraordinary success story.

Synlait had fallen on very tough times indeed when Kiwi investors would not support a proposed capital raising in the wake of the global financial crisis.

Shanghai's Bright Dairy was, at that time, looking to make its first major investment outside China.

Investment bankers lined up the deal.

Bright Dairy injected about $82 million of new capital into the restructured company and ended up with a 51 per cent shareholding in Synlait Milk.

As New Zealand Trade and Enterprise's Richard Laverty has observed, in China the market for premium milk products from New Zealand is growing rapidly and the deal will help establish a market-leading position in the infant formula and milk powder category with a co-branded range.

In Dunsandel yesterday for the opening of a new facility, Synlait Milk chief executive John Penno said the development of the nutritional business would be the fundamental business driver over the next five years.

Synlait was experiencing a great response from its target customers and had new interest emerging weekly.

Synlait Milk's export markets include Asia and the Middle East, with China, a $20 billion industry, the company's "most important market".

Synlait Milk was repositioning its brand to be the leading nutritionally focused dairy company in New Zealand.

Penno said the tagline "milk nutrition for a modern world" was all about the company innovatively meeting consumer demand for premium nutritional milk products that support health and well-being.

"Pure New Zealand in a can" - Penno's alternative slogan for Canterbury Pure - will resonate.

Particularly as the company leverages the growing world-wide demand for high-value formulated milk powders designed to improve families' normal diets and protect against health concerns.

Neither Penno nor Synlait Milk chairman Graeme Milne could give a firm indication when the company will be publicly-listed.

Both Synlait and Bright Dairy mentioned this prospect when the Chinese company made its capital injection.

But irrespective, revenue projections are rosy. Synlait expects to post about $400 million in revenue this financial year, rising to $600 million-$700 million annually within three to four years.

The revenue boost will come from sales of the new nutritional products into China and elsewhere but also from leveraging the bilateral Chinese free trade deal.

Tariffs for some finished dairy lines will start to phase out next year. Synlait has also been approached to manufacture product in New Zealand for parties seeking to leverage the FTA.

While on the subject of leveraging, Cheng used the opening of the new facility in Dunsandel to reinforce China's desire to invest in New Zealand's dairy sector.

He pointed out that China had previously witnessed an imbalance in the inflow of capital from foreign companies.

Now China was seeking to go out into the world. He noted Fonterra was a big name in China "very lucrative and productive" and said while New Zealand had a "certain number of xenophobes" he hoped others would take a more positive view.

In essence, Chinese investors here - such as Bright Dairy - would be urged to be good corporate citizens.

Cheng had also been down to have a talk to the Overseas Investment Office (which is studying Pengxin's bid for the Crafar dairy farms) and the OIO had noted that there was little Chinese investment in New Zealand.

Trade Minister Tim Groser countered saying New Zealand welcomed "greenfields investment" from China.

None of the politicians want to open up the Crafar farms minefield this side of the election.

But what was on show in Canterbury yesterday was a positive story of the marriage of Chinese capital with New Zealand's pastoral farming excellence and technical know-how.