Fonterra plans more China farms

Fonterra plans to invest in two more farms in China to increase fresh milk supplies amid strong demand.

The company has identified several suitable sites near its first farm at Hangu, Hebei province, according to Fonterra's China managing director, Philip Turner. It would consider investing with partners and hoped to complete long-term leases by mid-year, he said.

Fonterra is seeking to rebuild its business in China after a melamine contamination in 2008 killed at least six infants, put more than 54,000 in hospital, and caused the collapse of its local partner Sanlu Group.

Fonterra wrote off its 43 per cent in milk company Sanlu for a loss of $201 million.

However, Fonterra later reported increased sales of imported milk powder in China as parents avoided the domestic product.

Two men, milk suppliers who did not work for Sanlu, were executed for their part in the scandal, and the former chairwoman of Fonterra's joint venture in China, Tian Wenhua, was sentenced to life in prison and fined 24.7 million yuan ($5.6 million).

Fonterra, which started its first farm in China in 2007, would extend domestic supplies only if it had complete control of milk quality, chief executive Andrew Ferrier said last year.

"The current supply of high-quality fresh milk cannot keep up with demand," Turner said yesterday.

"We are looking to help grow a safe, secure and sustainable milk supply in China in order to meet this demand and expand our customer base."

The Tangshan Fonterra farm started with about 3000 cows imported from New Zealand. It has almost 5800 animals now, after two rounds of calving, and Turner said it was ahead of schedule in terms of target production.

Tangshan manager Todd Meyer said the second round of calving was proof that Fonterra had successfully adapted the New Zealand-quality herd to the farming environment in China.

The farm, worth around $20 million and 85 per cent owned by Fonterra, was producing record levels of milk for China, Turner said.

The next farms would be similar to that at Hangu, with about 3300 cows on 35ha of land, he said.

They needed to be close to Hangu to benefit from transport and supply efficiencies, and they would be fully managed by Fonterra.

Last year China's dairy market posted double-digit annual growth and a demand of 27 billion litres of milk - nearly twice Fonterra's New Zealand milkflows.

Chinese consumption per head is still low.

- BLOOMBERG, NZPA