Christopher Adams

The Business Herald’s markets and banking reporter.

Fonterra's new China push

Economist lauds dairy giant's move to sell own infant formula in world's biggest market.

Fonterra says it will begin selling New Zealand-made Anmum infant formula in China in the second half of this year.  Photo / Getty Images
Fonterra says it will begin selling New Zealand-made Anmum infant formula in China in the second half of this year. Photo / Getty Images

Fonterra will launch its own infant formula brand in China this year as it looks to grab a slice of the booming market for the product in the Asian superpower.

And a top economist has described the news as one of the most positive developments for the New Zealand economy that's taken place in many years.

Fonterra has been criticised for not cashing in on the Chinese baby formula trade, estimated to be worth US$6 billion ($7.1 billion) annually and projected to double in size by 2016.

New Zealand's biggest company supplies milk powder and other ingredients to a number of the world's leading infant formula manufacturers that sell product in China.

But to date Fonterra's own infant formula brand - Anmum, sold in Malaysia and Indonesia - has not been sold in China, the world's biggest market for the product.

The dairy co-op's connection with the 2008 Chinese melamine disaster through its joint venture with Sanlu, one of the firms found to have contaminated products, put a big dent in its plans for China and could explain why it has stood on the sidelines of the branded infant formula market in that country for so long.

The scandal, in which six babies died and thousands more became sick, drove a huge rise in demand for imported formula, which commands a hefty premium over locally-made products.

Chinese companies have identified the opportunity and are setting in motion plans to establish infant formula plants in New Zealand, including Yashili International Holdings, which last week received Overseas Investment Office approval for a $212 million factory in Pokeno.

Fonterra said it would begin selling New Zealand-made Anmum infant formula in China during the second half of this year.

"We already sell maternal health products in China under the Anmum brand, so the pilot sales of infant and follow-on formula under this brand align well with this strategy," a Fonterra spokeswoman said.

The company will first sell its infant formula in Beijing, Shanghai and Guangzhou and then expand sales to other parts of the country if the initial launch proves successful.

Fonterra has also announced plans to establish a UHT milk processing plant in China in the next few years.

Asked about the significance of Fonterra's Chinese infant formula plans, BNZ chief economist Tony Alexander said: "It's one of the most positive announcements relevant to the New Zealand economy for a great number of years."

He said New Zealand food products were highly regarded in China.

"But to date Fonterra has concentrated on being a low-cost commodity producer and the value-added bit has been increasingly left up to either Tatua [another dairy co-op] or these smaller infant formula factories popping up around the country with significant Chinese investment going into that area," Alexander said.

"Many of us have been confused as to the lack of determination by Fonterra to move into that value-added business."

Chinese formula trade

* Worth about US$6 billion annually.

* Projected to double in size by 2016.

* Cans of imported formula can retail for as much as $70 each.

- NZ Herald

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_a1 at 21 Oct 2014 07:05:50 Processing Time: 248ms