Fonterra 'humming' in Greater China - Zhu

Top executive insists the company is doing well in the region despite negativity over Beingmate's $230m loss.

Fonterra's top executive in China says the co-op's business there is "humming" despite the woes with its investment in infant formula maker Beingmate.

The headlines around Fonterra in China have centred on its 18.8 per cent holding in Beingmate, which last year turned in a 1.06 billion yuan ($230 million) loss.

Fonterra's top boss in China, Christina Zhu, doesn't resile from Beingmate's issues.

Last month, an audit by Chinese regulatory authorities revealed a labelling issue, which Fonterra says has been satisfactorily resolved.

Beingmate has just appointed former FrieslandCampina executive Bao Xiufei as general manager, which Fonterra sees as a step in the right direction.

Zhu said the well-publicised travails of Beingmate had tended to obscure the bigger picture of Fonterra's operations in China.

"Obviously the performance (of Beingmate) over the last two years is simply not acceptable, for sure," Zhu, who sits on the Beingmate board, said in a phone interview from China.

"It's been a priority for the group to do everything we can to improve that," she says. But she admits there was a real difference between having an 18.8 per cent holding versus 100 per cent control.

"That's why you see a stark contrast between the performance of Fonterra Greater China - excluding Beingmate - and Beingmate's performance."

"I understand why it gets a lot of attention and it is a big priority for us as a group, but from another perspective, it is only a part of the overall China business."

"And the overall China business is humming really, really, well," she said.

Chief executive Theo Spierings said at Fonterra's six-month result that while the Beingmate investment had underperformed, the co-op's Greater China was business was delivering positive results.

Zhu says food safety is paramount in China, and Beingmate's record on that score was strong. In general she said Fonterra expects Beingmate's performance to be better "and we have reason to believe that it can be better".

Fonterra's top executive in China, Christina Zhu. Photo / Chris Adams

"We believe that the industry's fundamentals are still strong and that Beingmate has a right to play, and a right to win, in this market."

Zhu says a group of farmer shareholders came away from a recent visit with a new appreciation of what it takes to do business there.

"They saw that it is big, difficult, complicated, dynamic - how ruthless this market can be and what it takes to be successful here," Zhu says.

She says what typically overwhelms them is the size - where just one compound can house up to 100,000 people.

She wishes she could replicate the exercise for others so that more people could "get it" about what it takes to operate in the PRC.

China remains an important part of Fonterra's operations and is the number one market in terms of scale and volume.

"It's definitely the most strategic market, and it's unique," she says. "I think that it's really important not to lose sight of that."

"China is still the largest infant formula market in the world. It is still the fastest growing and still the most attractive in terms of the premium that consumers are willing to pay. It is also important to highlight that the most 'important right to play' in the market is food safety-quality," she said.

Fonterra accounts for 35 per cent of China's total dairy imports.

"That's huge and that dependence is mutual - because about a quarter of our volume goes to China as well," she said.

Fonterra has put its money where its mouth is in China having invested $755m in Beingmate and having spent $800m in setting up big dairy farms there.

On the consumer side, Fonterra has expanded its portfolio in butter, cheese and yoghurt.

In just five years Anchor has become the number one imported milk brand in China.

She points out that local dairy production will not grow hugely in China because the land is not well suited for dairy farming.

"Self sufficiency (in dairy) is not a high priority than it is for the other foods," she says. "So fundamental future is relatively clear. It's definitely the most strategic market, and it's unique," she says. "I think that it's really important not to lose sight of that."