Fonterra's grand vision for China

Nicola Morris says it's important to fit in with Chinese ways of working. Photo / Supplied

Dairy giant aims at producing up to one billion litres of milk from 30 farms in China by 2020. Agribusiness reporter Sally Rae visited one of the Fonterra farms, near Beijing, and took a look around.

As Fonterra China Farms general manager Nicola Morris sums up, it is about taking the best of Kiwi ingenuity and farming systems, melding it with the best of American and European confinement systems - and doing it in China.

There are 3200 milking cows and 2700 youngstock on this Fonterra property in China, a housed operation involving high-tech, intensive dairy farming systems and three-times-a-day milking.

Every single ounce of vast quantities of locally produced corn silage, which is being fed to the cattle, has been cut by hand.

And that, as Morris succinctly says, is "the disconnect that's China".

"China's just a different world, it's not New Zealand. Great people, really, really good people ... great place to live, but they do business in different ways to us.

"That's not saying it's wrong, that's just saying it's different. We just have to get our heads around what's important, and what we just have to understand is China, basically."

Morris, 48, comes across as a down-to-earth, straight-talker - sporting a broken kneecap as she hobbles around the dairy operation.

She has been in China for the past 20 months and, having spent the previous four years in Tasmania, she admits it is "a little bit different".

From New Zealand - her father was a research scientist in Wellington - she was a "townie" but at the age of 11 decided she wanted a career in agriculture.

She spent 16 years running Taratahi Agricultural Training Centre in the Wairarapa before becoming chief executive of Van Diemen's Land Company, Australia's largest milk supplier, with 21,000 cows producing 6 million kg of milk.

She moved from Stanley in Tasmania, with a population of about 400, to an apartment in central Beijing which houses about 1000.

She also moved from running a pasture-based dairy farming system to a housed operation. But she was adamant that confinement farming was no different from any other farming system. "It's getting a good animal and treating it properly, which is animal health. It's how comfortable it is, and it's feeding it."

"It's all those key things which are the same whether you're in a paddock in Hamilton or a barn in Yutian."

The confinement operation is a far cry from what most New Zealanders are familiar with - pastoral farming.

It might take a bit for a Kiwi, used to seeing dairy cattle grazing on lush green irrigated pasture in Waikato, to acclimatise to the sight of such a large-scale housed operation.

From the cows in the massive barn, where large fans provide effective relief from the heat, to the calves in their own enclosures, it is a vastly different scenario.

But while it might all seem a bit clinical, the reality is that all the stock are well fed and watered, have shelter - the temperatures are extreme, ranging from -25C in winter to 45C in summer - and appear very content. And it is difficult to argue with the production figures being achieved at the farm.

Take a heifer in New Zealand, producing 17 litres of milk a day, send it on a boat trip to China, put it into a housed farming situation and that milk production increases to between 30 and 32 litres a day, Ms Morris said.

And the reason for that dramatic increase? It's all about feed. "It's a perfect life. You wake up in the morning, get out of your comfy bed, your feed has been put in front of you, you eat it, you go and get milked.

"You come back and, gosh, someone's put more feed there for you. You eat it, you lie down and have a snooze and produce milk and you do that three times a day. And so basically, all they have to do is move to the milking parlour and back, eat food and make milk."

Alfalfa (lucerne) was imported from the United States, as Fonterra had not been able to find a high enough quality alfalfa in China, and it was used as a high protein "rocket fuel" for the cows, while all other feed was sourced from within China".

She realised that New Zealand visitors were often shocked by the look of Northern-Hemisphere style housed farms. But once they looked around, they realised the animals were "as happy as you'll ever see, as good as you'll ever see".

On the China farms, it was a very contained system - "everything that comes in has to go out some way". Effluent was treated and resulted in compost which was then used by local vegetable growers and farmers, while water was recycled.

When it came to animal welfare, the key factor was comfort. "If you get it wrong, obviously any disease can spread like rapid fire because they're in a contained system. Comfort and being absolutely at the top of your game in terms of animal health protocols is key," Morris said.

Yutian 2 is Fonterra's newest farm, commissioned in October-November last year.

All the livestock on Fonterra's China farms either came off a boat from New Zealand or from stock bred internally.

In addition to what was brought from New Zealand, Fonterra was aiming to breed as many animals of the right type on its China farms as possible - the most cost-effective way of increasing livestock.

Fonterra's first China farm opened in 2007 at Hangu, east of Beijing. There were "huge learnings" as it went from there to Yutian 1 and then incremental learnings as Yutian 2 was opened, she said.

Yutian 3, a double farm, is under construction now and will be completed by the end of this year.

After initially a steep learning curve, the process was now much more refined. "We're pretty close now to having, we don't like the word cookie-cutter, but a model you can pull out and say 'This is what we want a double farm to look like, this is what we want a single farm to look like'."

The aim of Fonterra's farming operation in China was to have a hub of farms. Yutian was its first hub and, when completed, would comprise five farms, with between 15,500 and 16,000 milking cows, a similar number of youngstock - "that's way more than we need in a pure farming model but we can take all that surplus stock and put them on the next farm" - with 550 staff and producing 150 million litres of milk.

The idea was to roll out a hub of farms every year from next year on, which involved building the farms, finding the people and sourcing the livestock. It cost about US$42 million ($53 million) to set up each farm, which included livestock.

Fonterra realised that, if it wanted to be successful in China, it had to have Chinese staff. Skills of employees could range from being a peasant farmer or a factory worker "through to having done a degree in goodness knows what".

Having no skills for putting cups on a cow was "just great", Ms Morris said.

"That way if you get your SOPs [standard operating procedures] right ... you will have a workforce who will do exactly what you ask them to do every single time."

About 60 to 70 per cent of staff lived on-farm, with the balance living in local villages, and Mandarin was the language of instruction.

"We're in China. To be successful, we have to understand that those of us that can't speak Mandarin, that's our problem, not their problem.

"We've got to understand how to accommodate them, not to expect them to try and figure out how to work with us," she said.

Milk was stored in insulated silos on-farm before being loaded into tankers for delivery to local Chinese customers.

Fonterra has a range of processing contracts in China and the milk was sold unbranded at the gate.

Ms Morris said Fonterra chief executive Theo Spierings had been very clear about an integrated milk strategy.

"We're not building farms in China just to have a farm in China, it's got to be part of a bigger play and, over the next couple of years, I think we'll see some real clear moves in that line.

"I don't know if it'll be a Fonterra tanker per se, but it will be a tanker taking milk from our gate to be processed into something that we will attribute."

The dairy industry in China was "huge" and ranged from "Mum and Dad with a cow which they walk down the road to the communal milking facility" to farmers with up to 1000 cows, and then the corporate dairy farmers like giants Mengniu and Modern Dairy, and also Fonterra.

But assuming that China kept on growing, Fonterra would still be only "a really small percentage", Ms Morris said. "A billion litres is a tidy piece of milk but in China and where China's growth is going, we are not a big player."

"The challenge that usually gets thrown at us is 'So why are you building farms in China' and 'Hey, have you noticed people are getting farms in New Zealand, so does that equate?' My answer back is always, if you look at the growth in China, it's so huge, New Zealand ain't got enough milk to supply China, it's never going to have enough milk to supply China.

"So what we're doing here most certainly isn't in competition with what's happening in New Zealand. And this is just another avenue to actually increase our market share in China because we just can't do it all from New Zealand or Australia."

Big operation

* Cows at Fonterra's China farms are housed in barns and milked three times a day.

* The average cow produces about 34 litres of milk a day.

* Individual monitoring systems measure each cow's health and production.

* All of Fonterra's Chinese herds originate from imported New Zealand friesians.

* Fonterra's pilot farm (Tangshan Fonterra Farm) opened in 2007 at Hangu, east of Beijing.

* Tangshan's herd size has doubled since opening. It is now producing 30 million litres of milk annually.

Sally Rae travelled to China as a guest of the NZ China Friendship Society.