Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The alliance is subject to Chinese regulatory approval and will leverage Fonterra's expertise in dairy nutrition and farming in China and Abbott's commitment to business development in China.
"This would be Fonterra's third farm hub in China and will complement our existing farming operations in Shanxi and Hebei Provinces that have been very successful," said Fonterra chief executive, Theo Spierings.
"Farming hubs are a key part of our strategy to be a more integrated dairy business in Greater China, contribute to the growth and development of the local Chinese dairy industry and help meet local consumers' needs for safe, nutritious dairy products.
"We're pleased to partner with Fonterra, a global leader in dairy science, on this alliance to build dairy capacity in China," says Miles D. White, chairman and chief executive officer, Abbott. "This is a very important step in our growing commitment to Chinese consumers."
Both companies will work with Chinese regulators to obtain necessary approvals through the course of the project's development.
If approved, Fonterra and Abbott will form a joint venture to invest a combined US$300 million (NZ$342 million or 1.8 billion RMB) into the farm hub, which will contain up to five dairy farms and more than 16,000 dairy milking cattle in production, producing up to 160 million litres of milk annually.
The herd for this hub will comprise animals either imported, or sourced from Fonterra's existing farm hubs. All dairy cattle will have genetics traceable to New Zealand, Australia, USA or Europe.
As the world's largest global milk processor and dairy exporter, Fonterra brings industry-leading dairy standards and practices to farm operations. The Fonterra-Abbott joint venture will operate the farm hub in China to these same standards to produce high quality dairy.
Pending regulatory approval, the first farm is expected to be completed and producing milk in the first half of 2017 and the remaining farms will commence production in 2018.
Fonterra and Abbott have a long history in China and have each made substantial commercial and social investments in the country.
