Runaway dairy demand sees Fonterra boost Chinese milk supply

12-Apr-2012 - Last updated on 13-Apr-2012 at 08:46 GMT

Fonterra has opened its second farm in China and said it plans to build a further three to service massive consumer demand in nearby Beijing and the country at large.

As part of its recently unveiled ‘three V’ strategy, the world’s largest dairy processor ($19.87bn turnover: 2011) said that it was committed to investing heavily in emerging markets such as China to protect its position as the world’s top dairy exporter.

‘Yutian Farm One’ is located in Hebei province – in the country’s northeast, west of Beijing – and CEO Theo Spierings told journalists: “We have a long history in China and we are committed to the further development of the local Chinese dairy industry.

He added:“We want to establish an integrated milk business in China that processes high quality milk from Chinese farms into dairy nutrition for Chinese customers and consumers.”

In its recent annual report, Fonterra pinpointed the success of its Anlene 'bone health' brand in China (available as a milk powder supplement, 2010 launch) as the market leader in Shanghai and Guangzhou, while it said it aimed to focus on ingredients for pediatric nutrition firms in the country.

Glossing growth in China, Asia and LATAM, the firm said it would ensure its portfolio met needs for 'base nutrition' (powders, liquids, cheese) and 'specialised nutrition' focused on the young and ageing, and 'out of home nutrition' for take-out and eating out.

Consumption expected to double

Fonterra said in March that – given that New Zealand was only likely to grow milk production by 5bn litres of milk per year by 2020 – it would have to grow volumes to meet world demand for an extra 100bn litres by this date.

Consumption in China alone is expected to double by 2020 – Fonterra sales there hit $872m in the six months to January 31 2012 ($803m: six months to January 31 2011) while the firm's exports to Europe and North America are growing at a slower rate – by which time it is anticipated that the People's Republic will account for more than 70bn litres of milk per year.

“It is clear that much of this growth in demand for dairy nutrition will be met from local production,” Spierings said.

He added that Fonterra intended to develop separate farming hubs across China, with the ultimate goal of producing up to 1bn litres of milk per year by 2020.

Farms to service Beijing

Fonterra opened its first farm in Tangshan in 2007, and now milks around 2,200 cows that produce around 11m litres per year, although the firm says that its maximum output is 30m litres.

Spierings said: "Construction of our third farm, also at Yutian County, is underway and today we are also announcing that we will be investing NZ $100m in a further two farms in the same province.

"This will mean we will have a hub with five farms within the area. Combined, they will have a herd size of around 15,000 milking cows producing 150m litres a year and all nearby a large market like Beijing,” he added.

Asked how the 150m litre production figure in China compared with current production levels in New Zealand, a Fonterra spokesman told DairyReporter.com: “In our home market the annual production is currently approximately 15bn litres.”

So was this just the start of things to come in China, given that Fonterra was still only producing milk at a fairly low level? “Yes it is – but our chief executive [Spierings] has said publicly that we have aspirations to hit 1bn litres in China,” he added.

Fonterra was selling milk to local customers, the spokesman added. "All parts of our China business from farm operations to foodservice and our consumer business are performing well," he said.