Chinese investors pull pin on Otorohanga dairy factory

Chinese investors have pulled the plug on a proposed $80 million dairy factory that was set to sprout up in Otorohanga.

The King Country town was set to welcome the third Chinese dairy factory to the Waikato in as many years, following a deal signed in May.

Chinese investors from He Run International Investment signed on with three Kiwi investors for a $80 million dairy factory which would produce high-value infant formula and specialty products such as cheese.

However, minority shareholders have confirmed the plans went cold following the stock market crash in China.

The factory relied on 70 per cent backing from He Run investors, with the balance to be made up by Kiwi investors David Carey, Russell Bayley and Hamish Putt.

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The minority investors were told verbally of He Run's decision in Hong Kong in August with written confirmation in September, the Waitomo News reported.

"Their main reasons were they thought there were some technical problems with it, which they didn't explain, and the fact they were finding it difficult to fund," Carey said.

"We suspect the funding issue was the biggest issue because of what is occurring in China with the stock exchange and the flow of money out of China. It is nearly impossible to get any funds out to do what they wanted to do here in New Zealand.

"It is a very disappointing result because they have an outlet to supermarkets right throughout China and a brand in Hong Kong which were key points as to why we were keen to invest with them. But it was just not meant to be."

The news came as disappointing to Federated Farmers Waikato president Chris Lewis, who thought the investors had been short-sighted in their decision to pull out.

"With anything in dairy or farming you've got to take a long term view, whether you are starting a farm or building a factory, there's no such thing as a quick buck.

"It's a pity those investors didn't have the vision most farmers have in New Zealand and the vision most farmers have in Fonterra."

The decision was also a blow to the town, which has already seen some 30 jobs disappear as a direct result of the dairy downturn, said Otorohanga Mayor Max Baxter.

Initial indications from Carey were that construction was due to begin in August and bring up to 250 jobs to town during the proposed 12-month construction phase. The factory was expected to provide up to 50 jobs long-term, Carey said.

"It was going to be absolutely wonderful and everyone's really disappointed in that respect [to job losses]," Baxter said.

"I know a lot of businesses are seriously struggling, even though there's a bit more optimism. Cash flow is still really compromised and grass growth is probably a good month to six weeks behind where it should be."

Baxter said he'd had concerns about the factory since the Chinese stock market crashed in June.

"I suppose those fears were realised when the Chinese decided they weren't going to invest any money offshore."

Baxter said he understood Carey went to China to try and renegotiate the deal with the investors, but failed.

The investors had secured a right of purchase for a site on Waitomo Valley Rd and State Highway 39 for the factory, but never purchased it, Baxter said.

Baxter said the community would still "absolutely" welcome the addition of a dairy factory in the region in future particularly to boost employment for the town.