Fonterra's Chinese farm the first of 20

Todd Meyer's tender care gets cows producing more milk at Fonterra's first China farm. Photo / Supplied

Fonterra's Tangshan Farm, two hours northeast of Beijing isn't the sort of operation most of its New Zealand shareholders would be familiar with. But it's certainly the way of the future when it comes to the co-op's desire to maximise returns from the growing Chinese appetite for milk products.

Last year, following the drop in milk powder sales after the San Lu melamine tampering scandal, imports of milk powder to China leapt 84 per cent to 325,500 tonnes. New Zealand took an 88 per cent share of this increase in trade, with China now accounting for around one third of total whole milk powder exports from this country.

As Fonterra chairman, Sir Henry van der Heyden said after his visit in October last year, the key message for all four of its businesses - brands, food service, consumer business and ingredients - was "growth, growth, growth".

Under their free trade agreement China and New Zealand declared their desire to double trade over the next decade.

"Dairy plays big role and will be larger because that's where demand is," van der Heyden said. "China's on the march. It's hard to get your mind around 1.4 billion people with increasing earnings."

Phillip Turner, Fonterra general manager in China, used one word to sum up the opportunities the market presents - "eye-popping". Very much key to that is chasing the Chinese people's change in diet not only to increased protein intake, but more Europeanised and upmarket items such as those found in bakery cabinets.

And fresh milk, rather than milk powder or ultra-heat treated (UHT) milk which now dominates the liquid milk market, will be where the greatest growth is likely to come.

Chinese dairy company Mengnui is a large player in the UHT market, with huge processing and packaging facilities at its plant outside Hohhot in Inner Mongolia. And just a short drive away is its research farm where the aim is to breed cows with the best genetics and feed them on the best forages in an environmentally sound way. Replication of such systems would see a transition from UHT to fresh milk for the growing numbers of urban Chinese with income to spend on the Western food trends they are increasingly exposed to.

Tangshan Farm is the prototype farming model for Fonterra with more than 6000 cows housed in barns, similar to US milk production systems on 35ha of land. Feed is brought in to them at the rate of around 180 tonnes a day - mainly maize silage which is grown by local farmers or alfalfa hay, some of which is imported from the US, ground corn, cotton seed and soy bean oil.

It's all loaded into a large mixer wagon along with vitamins and minerals and spread in front of the deep sand-lined freestalls where the cows spend most of their day. They average 13 to 18 feeds a day.

The farm's general manager, Todd Meyer, who has worked with dairy cows in China since moving there 13 years ago, said the whole aim was to provide a no-surprise environment.

That certainly shows up in milk production for the Holstein Friesian cows imported from New Zealand, which deliver more than twice the volume they would at home at an average of 8700kg milk per cow per year. They are milked three times a day with full udder preparation beforehand, consisting of their teats being dipped in a sterilising solution, stripped of their first milk then wiped with a cotton towel. This compares with the typical twice a day New Zealand milking routine of cups on and off in rapid order.

Meyer believes there's more milk to be gained on the farm yet through genetic improvement, which would boost production per cow up to near that achieved in the US.

On Tangshan there are 140 workers split into three teams looking after milking, breeding, effluent, veterinary services and calf and heifer programmes. The cows calve virtually every day of the year and there are ample staff in the spacious, airy calving barn to immediately attend to the newborns. Heifer calves will be transported by cart and truck to rows of pens where they will be fed colostrum, the cow's first milk, after birth, from a nippled bottle. Meal and water are also available from the beginning.

All calves are retained to build herd numbers and kept in this barn until they are five or six months old. Then it's on to the nearby heifer barn to begin feeding on the total mixed ration (TMR) they will continue to receive as mature cows. Bull calves are sold to local beef producers where good market demand has already been built up.

The climate in the low-lying, coastal country is much less benign than in most New Zealand dairying regions with temperatures in the barns sometimes falling to -25C, meaning weeks where the temperature doesn't get above zero. Plastic curtains are used to protect the cows against cold winds.

On the flip side there can be high humidity and temperatures nudging 40C in summer when both fans and water sprays are used to keep the cows cool.

Effluent disposal is a big concern, with a new system installed last year allowing the bedding stall sand to be scraped to the end of the barns then flushed with water. It goes into a screw press to finish up as dry, solid manure which is further processed into high quality compost. A methane digester may be installed in the future to be able to make even more use of what would otherwise be a waste product.

Milk produced on the farm is sold to local customers and trucked to them in 30-tonne tanker chilled to 4C. It's mostly sold as liquid milk but not branded in any way as to its origin. And Meyer said there was no shortage of other potential buyers.

With the success of Tangshan, Fonterra has been keen to press ahead with replicating the model. Chief executive Andrew Ferrier has talked of having 20 such farms in China and while he won't be drawn on the rate of return the co-op is aiming at, gives a strong indication it wouldn't be pressing ahead if this wasn't at a highly profitable level.

In late October last year Fonterra announced a $42 million agreement had been reached to set up a second farm at Yutian, the first of a planned cluster of four farms. This grouping will allow Fonterra to make the most of synergies in feed supply, for example, and also allow it to sign longer term contracts for services required.

The Yutian property, slightly larger than Tangshan, is only an hour's drive north of Beijing and when completed later this year will house 3000 cows, all imported from New Zealand. More than 100 locals will be employed.

Fonterra's general manager of international farming ventures, Peter Moore, said a there would be a number of improvements over Tangshan. More cows would be able to be milked through a larger dairy with individual milk weight measurement technology in place from day one. Fonterra had learned a lot from establishing and running Tangshan and would aim to improve cow comfort and, hopefully, milk production even more.

- Glenys Christian is the editor of Dairy Exporter magazine, www.dairyexporter.co.nz