Chinese dairy giant enters NZ market with $210m factory

Chinese dairy giant Yashili plans to build a $210m factory near Pokeno, Waikato. Pictured - Fonterra's Te Rapa dairy factory. Photo / Bay of Plenty Times

The establishment of a new player in New Zealand dairy product manufacturing took a step closer today when China's Yashili entered into a conditional agreement to buy industrial land for a proposed infant milk formula plant at Pokeno, 50km south of Auckland.

Yashili New Zealand Dairy said it is awaiting Overseas Investment Office (OIO) approval to proceed with the $210 million project, which will include the purchase of industrial land, construction and working capital for a processing plant on a newly-created industrial park at the northern end of the Waikato expressway.

The parent company, which is based in Chaozhou in the southern province of Guangdong, said it planned to commission the plant in the second half 2014, with planned annual production of 52,000 tonnes of finished and semi-finished milk product annually.

In January Yashili and China's biggest dairy company, Yili, unveiled plans to invest in building processing plants in New Zealand. Yili will spend $214 million in establishing an infant formula plant in South Canterbury as a result of its planned takeover of Oceania Dairy group.

Yashili is one of China's biggest producers, distributors and marketers of infant milk formula for its domestic market. The company has imported milk powder from New Zealand for over 10 years and has used New Zealand milk powder exclusively in its infant milk formula since August 2010.

In China, Yashili has promoted New Zealand-sourced milk content in its premium brands and associated its products, the company's New Zealand operations manager Terry Norwood said.

"We therefore see that it is a logical step for Yashili to further position its premium brands alongside New Zealand's strong, positive environmental profile, its reputation for technical excellence, and its efficient management systems by investing in a manufacturing operation to this country," he said in a statement.

Norwood said Yashili would not seek to set up supply arrangements with dairy farmers. "It's a bit early to go into detail on that, but we expect to source the milk commercially from current processors rather than sourcing it directly from farmers,"Norwood told APNZ.

Norwood, who has worked in the industry for 35 years in various technical and management roles, mostly on the manufacturing side, said Yashili's move had been encouraged by the Chinese Government's decision to reduce import tariffs on finished milk formula.

Norwood said the plant will provide local employment for 100 people.

"As a newcomer to the New Zealand dairy processing sector we want this project to be seen internationally as a working model for future successful investment in the country's dairying industry, where we add value to both local and imported ingredients for products for the export market," Norwood said in a statement.

Yashili shares last traded on the Hong Kong Stock Exchange at HK$2.67 having traded in a $1.14 to $2.80 range over the last 52 weeks. The company has a market capitalisation of HK$9.5 billion ($5.1b).

While the dairy industry market remains heavily dominated by the cooperative dairy giant, Fonterra, the list of competitors in Fonterra's space is growing.

Aside from its long-established dairy farm cooperatives of Westland Milk and Tatua, there is Canterbury-based based Synlait, which opened a $100m infant formula plant at Dunsandel, about 40 km south of Christchurch in 2011. Synlait is 51 per cent owned by Shanghai-based Bright Dairy & Food Co. The rest is owned by Synlait Ltd, which is owned by local investors and 22 per cent by Japan's Mitsui.

Miraka - New Zealand's first Maori controlled whole milk powder plant - opened a state of the art milk powder plant at Mokai, near Taupo in December 2011. Vinamilk, Vietnam's largest dairy company, has a 19 per cent shareholding in Miraka.

Open Country Dairy Limited is a private company as a dairy ingredient manufacturer, producing a range of high quality milk products. Open Country makes milk powders, milk Proteins, milk Fats and cheeses. Open Country's first factory, at Waharoa, started up in 2004.