Fonterra sinks US$40m into third Chinese dairy farm

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Fonterra, the New Zealand dairy cooperative, will spend US$40 million developing a new 40 hectare dairy farm in Yutian County, Hebei province, marking its third farm in China.

The move is the latest by Fonterra to build a fresh milk production and manufacturing capability in the booming Chinese market, which is already a major buyer of dried milk products using New Zealand milk.

The farm will increase Fonterra's overall milk production in China to around 90 million litres or 360 million cups of fresh milk every year. That compares with Fonterra's current total annual production of some 15 billion litres.

"The demand for milk in China is expected to triple over the next ten years, and much of this demand is for liquid and fresh milk products," Philip Turner, President of Fonterra China, said in a statement.

"Our future in China is underpinned by our ability to grow high-quality local milk production for our customers and by playing a strong role in the development of the local dairy industry."

Fonterra established a pilot project in Hangu in 2007, and demonstrated it could produce high quality local milk profitably.

A second farm in Yutian County is also under construction and recently took delivery of the first 1,140 heifers from New Zealand, with a further 3000 to be delivered in October and milking on track to start in November.

Fonterra plans a hub of farms over the next five years in Hebei Province, which is pursuing a national agricultural demonstration zone.

Unlike in New Zealand, Fonterra is using "free stall" barn-rearing methods for its Chinese herds in the northern coastal county of Yutian, near Beijing.

The new farm will house around 3,200 milking cows, which are expected to produce around 28 million litres of milk per year.

The farm will be managed and audited according to Fonterra's Standards of Excellence for milk production and will train and employ around 100 local staff.

Farm construction will start in November 2011 and is expected to be completed by late 2012.