Netherlands-based FrieslandCampina claims the 50/50 partnership, unveiled yesterday, is the first between Chinese and foreign dairies to source, manufacture, market, and distribute infant formula in the Asian country.
The 50/50 partnership, the culmination of talks that began in May 2014, will own Huishan Dairy’s Xiushui plant near Shenyang.
FrieslandCampina will invest around RMB700m (€90m) for a 50% stake in the plant.
Raw milk supplied by Huishan Dairy will be converted at Xiushui into infant formula sold under one of four FrieslandCampina infant formula brands - Dutch Lady (Vietnam), Foremost (Thailand), Frisian Flag (Indonesia), or Peak (Nigeria).
Huishan and FrieslandCampina will continue to operate their own infant formula businesses in China separately - FrieslandCampina marketing Netherlands-made Friso, and Huishan Dairy its Gold Queen, Gold Label, and Red Label ranges.
"Best of two worlds"
Yang Kai, CEO, Huishan Dairy, said the joint venture will take advantage of FrieslandCampina's existing Chinese sales and distribution channels.
“This cooperation will combine best of two worlds: Huishan Dairy’s top quality raw milk combined with world class Dutch technology and heritage," said Kai.
"Our infant milk formula will be made with the greatest possible care and expertise, based on specific Chinese nutrition needs, tailor-made to nourish Chinese babies."
Commenting, Cees 't Hart, CEO, FrieslandCampina, added: “This joint venture together with Huishan Dairy confirms FrieslandCampina’s continued commitment to its customers and consumers in the People’s Republic of China."
Under the terms of the agreement, FrieslandCampina has the right in 2019 to increase its shareholding to 60% if the joint venture exceeds annual production and sales of 6,800 tonnes and meets a pre-agreed earnings before tax.
This shareholding could increase further in 2021 if earnings before tax targets are met and infant formula production and sales hit 14,500 tonnes.
FrieslandCampina has also committed to purchase at least US$30m (€24m) of shares in Huishan Dairy on the Hong Kong Stock Exchange within six months of completing the joint venture, which is subject to Chinese approval.
Such shares will be subject to a six-year lock-up period.