Fonterra thinking big in China

JAZIAL CROSSLEY IN BEIJING
Last updated 05:00 09/04/2013

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Dairy giant Fonterra plans to expand its milking operations in China from three farms now to 30 by 2020.

As well as exporting New Zealand dairy products to China it also milks cows on the ground there, selling 30 million litres a year of fresh milk to the local market.

Fonterra has been operating from a Shanghai base for more than 15 years and has about 600 employees in mainland China, half of whom work at three farms it owns.

Fonterra China strategic business director Kelvin Wickam told The Dominion Post it planned to open two more Chinese farms in the next year.

"We lease the land, then we build the infrastructure and bring on the animals, which are a combination of US and New Zealand genetics.

"Each farm has 5000 animals with around 3500 milking, so it's not huge compared to New Zealand, where we have five million cows milking. But we plan to take that to 30 farms and one billion litres of milk a year by 2020."

About 85 per cent of dairy sold in China is locally produced. Wickam said Fonterra had a "significant" share of the market for imported dairy products. Milk powder imported from New Zealand was scattered throughout the supply chain.

"It could be in a chocolate bar, in yoghurts or in a milk drink. There are quite a lot of cultured milk drinks on the market in China. Some of those products are likely to have New Zealand milk powder or whey protein, although they have a low percentage of milk at 2 or 3 per cent, with the rest being juice."

New Zealand's total dairy exports to China have skyrocketed from $557.15 million in 2008, the year the Free Trade Agreement was signed, to $2.7 billion last year, most of which is from Fonterra.

In the Chinese market Fonterra sells low levels of Anchor butter in supermarkets, which Wickam said was bought mainly by expats, processed Anchor cheese, infant formula called Anmum and a formula specially for pregnant mothers called Anmum Materna.

Fonterra was experiencing strong growth selling cream, butter, milk and cheese to the food service industry in China. Wickam said the business had doubled in the last five years and would continue increasing by 25 per cent a year.

The high calcium Anlene brand for improving bone density, successful for Fonterra in other South East Asian markets, was relaunched in China three years ago as a product to strengthen bones, improve joint mobility and muscle health.

"We're growing it by educating consumers, taking bone scanning machines to malls to scan and measure bone density.

"You'll find through dietary backgrounds a lot of [Chinese] people in their mid 30s and 40s due to a deficit in calcium in their diet have bone density that is lower than ideal for the risk of breaks and issues later on, osteoporosis. We have evidence from clinical trials to show consuming Anlene milk powder on a regular basis can improve bone density."

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Wickam said the recent DCD scare damaged sales in China only the week the news broke before sales returned to normal.

"The DCD scare was very concerning but it was never a food safety issue of any kind.

"Trace residues of a fertiliser appeared in very small amount of product at the start of the New Zealand season and have now been eliminated.

"I don't in any way condone that we found trace elements of DCD, but I'm pleased we picked it up."

The Asia NZ Foundation is funding Jazial Crossley's travel to China.

- BusinessDay.co.nz

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