China is what you make of it

By Alexander Speirs

Nicola Morris is confident Fonterra is positioning itself well to meet the challenges of the Chinese market

Nicola Morris will show-off Fonterra's Yutian 2 farm when the business delegation accompanying the Prime Minister visits China this week. Photo / File
Nicola Morris will show-off Fonterra's Yutian 2 farm when the business delegation accompanying the Prime Minister visits China this week. Photo / File

The down-to-earth boss of Fonterra's China farms is excited about her big role driving the expansion and management of the New Zealand dairy giant's farming operations in China.

"There's a huge demand for milk and massive opportunities - it's up to us to decide what role we're going to play in it," says Morris from her Beijing office a good hour and half drive from Fonterra's closest farm.

Morris moved to Beijing 18 months ago to take up the role of general manager of Fonterra China Farms. Previously she was chief executive of Tasmania's Van Diemens Land Company and Tasman Farms where she oversaw 25 farms and 30,000 dairy stock.

During her three and a half years in Tasmania, Morris also took Woolnorth station from a bottom decile production facility to Australia's largest dairy farm, producing 5 million kilograms of milk.

Living on the edge of the embassy district in Beijing took some adjusting to after living in a cottage in Tasmania. "China is a challenge. It's different looking out of your window and seeing thousands of apartments instead of 25,000ha you control," says Morris.

The opportunities are indeed "awesome" but Morris will not have much time to soak up Beijing.

By 2018, Fonterra aims to produce one billion litres of milk every year in China from five farming hubs.

Each hub will be based around five farms, with 3000-3500 cows on each farm totalling about 16,500 per hub.("It's a manageable number.")

The first hub is well under way, with three farms; Yutian 1, Yutian 2 and Hangu built and operational. Yutian 1 was completed in December 2011 and has completed its first milking season. Yutian 2 was completed in November 2012 and Fonterra is now awaiting the green light to turn soil on Yutian 3 and 4.

"We're just waiting for the right conditions to get on to the land," says Morris.

"They're approved, funded and will be operational by November or December later this year."

"We are doing a huge amount of work here around the staff pipeline with all but four of our staff here from China ... we 're committed to growing the business here and it needs to be run by Chinese staff."

To maintain quality control all cows are sourced from New Zealand or bred from stock on existing Fonterra farms in China.

"We will never buy cows in China as we would be uncomfortable with the quality of the stock," Morris says. "One of our key strengths is the ability to get a good animal and we don't want to dilute that."

A purpose-bred cow (Fontessa), noted for its production and ability to survive in a range of climates, has been developed.

The cows are contracted before they are born in New Zealand and enter the Fonterra system after birth so that control can be immediately established and milk supply chains remain secure and robust.

When the Yutian hub is running at capacity it will be capable of producing 150 million litres of milk per year. At that stage, the milk will be outsourced to Chinese milk processors. Morris stresses Fonterra doesn't want to deal with just one processor. "Ideally we want four or five processors vying for our milk so there is competitive tension around what our product is worth.

"You need real scale before you can do something here and make it worthwhile,"

As milk capacity rises for Fonterra in China, internal processing capabilities are likely to emerge.

"We are here to grow milk pools, but with an end purpose," says Morris. "'The discussion becomes what are the best products for us to produce and that is going to depend very much on what the market dictates at the time," she adds.

Appealing to the most attractive markets in New Zealand and China is essential, but the realities of the investment and an inability to "chop and change" means "Fonterra have to feel pretty comfortable with what we're going to produce".

"A marketer's dream would be to have a farm in Shanghai but the farming reality is that the cost of building and production is too high."

Site selection is a lengthy process with a large number of criteria assessed, including the contour and quality of the land, surrounding infrastructure, accessibility and proximity to other villages and farms. "We won't go anywhere near other farms because there is too much disease spread."

Accessing expert local knowledge is key, but Fonterra has also been able to use New Zealand firms like Beca and Mahon China. "It's about achieving a happy medium - if we're going to be successful in China we've got to build and maintain our own networks within China.

Morris indicates the Chinese Government's perception of Fonterra's activities is important. "We're investing significantly in the country as opposed to just coming here to sell our product."

The biggest challenge is the pace of growth. "Farming is farming. I've always said that farming is simple, you have an animal, you feed it and you collect the milk. China or Tassie - the fundamentals and philosophy remain the same.

"China is what you make of it. From a growth point of view, this is where it's all happening for the foreseeable future, whether that is farming or any other industry."

- NZ Herald

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