Fonterra spends $100m in China

Fonterra CEO Theo Spierings. Photo / Richard Robinson

Fonterra Co-operative Group plans to spend $100 million building two more farms in China's Hebei Province.

Chief executive Theo Spierings said the dairy exporter wanted to set up an integrated milk business in China as it sought to tap into the growing middle-class demand for high-protein food.

Speaking at the opening of Fonterra's second farm in Yutian County, Spierings said the extra two farms would create the first hub in the country with about 15,000 milking cows producing 150 million litres a year.

The announcement coincided with the appointment of Craigs Investment Partners as market-makers for the forthcoming tradeable Fonterra units under the Trading Among Farmers initiative.

"Our intention is to develop separate farming hubs across China, with the ultimate goal of producing up to one billion litres of high-quality milk every year by 2020," Spierings said.

That indicates Fonterra wants to have about 33 farms with about 100,000 cows in China by 2020.

Last year, Fonterra signalled its intention to build a farming hub in Hebei when it said it would spend US$40 million ($48.7 million) on a third farm in the region.

Its original pilot project, which demonstrated it could produce high-quality milk in China, was started in 2007. The dairy exporter is seeking external investment to pay for its global aspirations with its Trading Among Farmers project - a scheme that would enable farmers to sell the dividend rights of their shares to a fund, which would then become available for investors to buy as units in a secondary market.

In a separate statement, Fonterra said it had appointed Craigs Investment Partners as the registered volume provider for the shareholders' market, in which farmer owners can buy and sell shares among themselves.

Chief financial officer Jonathan Mason said Craigs' role "will be a market maker in the Fonterra shareholders' market, where farmer shareholders will be able to buy and sell among themselves" and would "include responsibility for creating a transparent market, and ensuring there are sufficient buy and sell orders aimed at creating market depth so that prices don't fluctuate unduly".

Deutsche Bank/Craigs, UBS and Goldman Sachs were also appointed joint lead managers on Trading Among Farmers.