Chinese dairy firm to build $214m plant in South Canterbury

The Chinese firm said it's attracted by New Zealand's relatively cheap raw milk and the prospect of the free-trade agreement with China. File photo / Dean Purcell

Chinese dairy firm Inner Mongolia Yili Industrial Group plans to spend $214 million building an infant formula plant in South Canterbury in a deal that will see it take over Oceania Dairy Group.

Yili will acquire Oceania to access its land resource consents to build a plant over 38 hectares in South Canterbury, according to a notice on the Shanghai Stock Exchange on Dec. 18. The Chinese firm said it's attracted by New Zealand's relatively cheap raw milk and the prospect of the free-trade agreement with China completely removing Chinese import tariffs by 2020.

The plant is scheduled to be completed by June 2014 operating at 60 per cent capacity, with annual full capacity of 47,000 tonnes expected in the 2016/17 year.

The deal is subject to Overseas Investment Office and Chinese government approval.

Chinese investment in New Zealand has been a heated topic in recent years after bids to buy large tracts of farm-land forced the government to announce a U-turn on its plans to free up overseas investment and a High Court ruling made the Overseas Investment Office impose a more rigorous analysis of foreign purchases.

Oceania Dairy sold milk supply contracts to Synlait Milk, which is half-owned by China's Bright Dairy, last year after failing to raise about $75 million to build a milk powder plant near Glenavy that would have processed 220 million litres of milk a year, producing 32,000 tonnes of powder.

Yili said it has a preliminary cooperation agreement with some local farmers to supply the plant, and indicated plans to draw on Fonterra Cooperative Group's regulated supply of raw milk.

Oceania Dairy director Don Brash told the NewZealandInc.com website that Yili had to announce the deal once its board had decided to go ahead.

Yili had been named as a potential suitor to New Zealand Dairies' South Canterbury milk processing plant in 2010, when Russian owner Nutritek Group started shopping around for a buyer.

Fonterra ultimately bought the plant this year out of receivership, and a phantom buyer claiming to have offered a better deal said it missed out because it needed OIO approval.