Fonterra to expand dairy farm operations in China

TOP MILK: Fonterra is earning premium prices for its fresh, high-quality milk, which it supplies to processors in China.

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Dairy giant Fonterra is extending its reach into China, negotiating to lease land by mid-year for two more New Zealand-style dairy farms in the world's largest emerging dairy market.

Fonterra China managing director Philip Turner said with the firm's pilot farm in Hangu, in Hebei province, performing profitably ahead of schedule and producing record levels of milk, the time was right for further investment.

The China dairy market is forecast to show double-digit annual growth over the next 10 years. The domestic dairy industry was developing quickly but the current supply of high-quality fresh milk could not keep up with demand, Mr Turner said from Beijing.

"Some of the big companies are running large-scale production facilities of their own but the number of farms in China at our level of quality and safety of milk production would be under 20."

Milk safety in China is of high public concern after deliberate melamine poisoning of milk supplies two years ago caused the deaths of several babies and made thousands of infants ill with kidney problems.

The melamine was added to raw milk supplies to processing factories to artificially increase protein levels, thereby drawing a higher price.

Fonterra's joint processing venture SanLu was involved in the crisis, along with more than 20 other plants. SanLu was bankrupted and Fonterra is no longer involved in processing in China but is expected to announce a new venture soon.

Fonterra was earning premium prices for its fresh, high-quality milk, which it supplies to processors in China, Mr Turner said. It would consider partnership agreements for the new farms but would ensure it had full control of farm management.

The co-operative was eyeing farm sites in corn-growing areas for long-term lease close to its pilot Tangshan Fonterra farm, he said. Corn is a staple diet of the 5800-strong herd on the 35-hectare feedlot farm.

The planned new farms would be of a similar size and carry around 3300 milking cows.

They would be a mix of cows imported from New Zealand and those raised on Fonterra's pilot farm, Mr Turner said. Tangshan Fonterra Farm is producing its second generation of China-born heifers. Half of the herd has been raised from the original imported friesian herd.

- © Fairfax NZ News