Agribusiness Report: Dairying in a different country

Alexander Speirs visited Fonterra’s farm in Hebei to find out how dairy farming Chinese-style differs from New Zealand.

Setting foot on a Chinese farm for the first time will feel like a foreign experience to even the most experienced New Zealand farmers.

The vast range of temperatures experienced in China (-25 to +35 degrees Celsius), means cows are kept in barns year round. The facilities have far more of a factory feel to them than New Zealand farms, with cows furnished with their feed as opposed to grazing freely in green-grassed paddocks.

What immediately stands out is how eerily quiet Fonterra's farm is. For 3500 cows, there's not a peep or a moo to be heard. It's a factory environment and everything's pure business at all times, although we're assured that "quiet cows are happy cows". Cows are milked three times daily in milking parlours. With 34 litres of milk produced from the average cow daily, each single farm has the capacity to produce nearly 120,000 litres a day.

In contrast to New Zealand, milk is sold by volume instead of milk solids weight. Cows brought to China are selected genetically on the basis of high-volume producers. All the milk produced in Fonterra's Chinese farms is destined for third party producers at present, with Fonterra's Kelvin Wickham saying, "eventually we want to use the milk for our own brands first, in addition to providing key customers with milk they are confident to use".

That local processing potential in the future is contingent on a stable and reliable milk supply locally, something which would require at least two fully operational farm hubs.

"Our overarching plan is to produce one billion litres of milk by 2020 from our own farms in China, and that's right on track," says Wickham. "We will build another four farms this calendar year, and as we continue to build competency we'll start to see the snowball effect there."

Fonterra finished its first farming hub in Hebei Province at the end of last year. Made up of five farms, the hub is on track to have 15,000 milking cows next year which would produce an estimated 150 million litres of milk as production ramps up. The Hebei farming hub cost around $250 million to build and employs around 500 people, the majority of whom are sourced locally.

"We learn something new every time we build a new farm," says a Fonterra spokesman.

"We've been able to standardise our design now and we know what works well. We're always looking for improvements though - how to better exploit economies of scale, how to make our processes more efficient, how we can better interact with locals."

Fonterra is under way with its second farming hub in China. The farms are being built in Ying County, Shanxi Province - about one hour's flight from Beijing - and will consist of two double farms and one single farm.

The farms will bring Fonterra's headcount to 30,000 milking cows in China, with production at the second hub expected to begin later this year.

Fonterra has signed land agreements for the second hub of five in Shanxi Province and is looking to have four farms operational there by the end of this year.

"We are able to roll out faster and on a larger scale at this stage because we've got the model largely right. We've got the animals lined up, we've got land, we've got business licences," says the Fonterra spokesman.

"We've been working in Ying now for fifteen months on all of the due diligence - technical, water, power, soil, topography, design work - and then working with the local government officials".

At the moment Fonterra is stocking its new farms with animals imported from New Zealand. New cows born on Chinese farms will gradually be used to stock new farms, but at present the majority are earmarked for replacing aging cows on existing farms.

Self-sufficiency is planned for the near future, with 2017 targeted and the aim to be able to stock newly built farms with calves born in China.

Fonterra must plan its livestock pipeline three years in advance. This ensures the right cows are being bred at the right times to meet the demand of the new farms.

Cows are carefully selected and genetically chosen semen is used to produce the best results for China. These calves are then reared and impregnated in turn when they're 14-15 months old.

They're then inspected and should leave New Zealand when they're 20 months old, enough time to acclimatise in China and get used to the farm before they calve.

"We have our heifers ready to leave New Zealand for Shanxi already," says the spokesman."

They're currently in isolation and will leave in mid-July to come up here. It's about a 10-day trip up here on the boat, after which they then go into quarantine for six weeks before moving to the farms."