Fonterra u-turn on China

Fonterra has to invest in producing milk in China if it is to establish a strong business there, the China Business Weekly reports.

"We will invest in Chinese dairy companies so we can produce products locally," Fonterra chief executive Andrew Ferrier told the magazine.

"It will complement our exports from New Zealand."

Ferrier said that only two years ago the company's directors had assumed there would be an enormous market for Fonterra's products in China, because mainland companies would not be able to produce enough to satisfy domestic demand.

"Two years later, they have had to change their views," the magazine reported.

Now Fonterra planned to use the business model from other key markets, such as Australia and several South American countries.

"The idea is to export their products to China while simultaneously investing in local production," it reported.

Ferrier visited Beijing earlier this month - on his third business trip to the country since he took over as chief executive in 2003 - and this time took the entire Fonterra board of directors with him.

Euromonitor International, a London-based consumer-research company, predicts milk production in China, India and Pakistan will rise 38 per cent in the next five years.

And China's retail dairy sales will expand 55 per cent to US$7.9 billion ($11.63 billion) by 2009, says the UN's Food and Agriculture Organisation.

China's milk production rose 25 per cent last year, when Chinese consumed an average of 13kg of dairy foods a person, compared with 5kg each in 1994. The world average is 100kg. China's Government is encouraging dairy consumption to improve nutrition, since the Ministry of Agriculture began selling fresh milk to primary schools in 1999 .

Ferrier told China Business Weekly that Fonterra was on its way to establishing a leading position in China's dairy sector.

He said the company was already negotiating a joint venture with local partners. "A joint venture would be the first step in what we hope will develop into a number of investments throughout China," Ferrier said.

"I won't be surprised if China eventually accounts for 10 per cent of our overall market."

- NZPA