Fonterra sells China farms for $555m to pay down debt

Fonterra chief executive Miles Hurrell. Photo / NZ Herald

Fonterra has agreed to sell its China farms for a total of $555 million to Inner Mongolia Natural Dairy Company, a subsidiary of China Youran Dairy Group.

Separately, Fonterra said it had agreed to sell its 85 per cent interest in its Hangu farm to Beijing Sanyuan Venture Capital Co for $42m.

Sanyuan has a 15 per cent minority shareholding in the farm and exercised its right of first refusal to purchase Fonterra's interest.

Fonterra expects to use the cash proceeds from the two transactions to pay down debt, as part of its previously announced overall debt reduction programme.

Chief executive Miles Hurrell said in building the farms, Fonterra had demonstrated its commitment to the development of the Chinese dairy industry.

"We've worked closely with local players, sharing our expertise in farming techniques and animal husbandry, and contributed to the growth of the industry," he said in a statement.

Fonterra has for the last 18 months been reviewing its business "to ensure our assets and investments meet the needs of the co-op today".

"Selling the farms is in line with our decision to focus on our New Zealand farmers' milk," he said.

Over the last 10 years Fonterra has invested about $1 billion in establishing China farms.

Last year, the co-operative said it would write down the value of several of its businesses in China, Brazil, Venezuela, Australia and New Zealand by $820m-$860m, including $200m related to China Farms.

In today's statement, Fonterra said it had worked closely with local players, shared its expertise in farming techniques and animal husbandry, and contributed to the growth of the industry.

"We don't shy away from the fact that establishing farms from scratch in China has been challenging, but our team has successfully developed productive model farms, supplying high quality fresh milk to the local consumer market," Hurrell said.

"It's now time to pass the baton to Youran and Sanyuan to continue the development of these farms," he said.

Hurrell says the sale of the farms will allow the Co-op to prioritise the areas of its business where it has competitive advantages.

"China remains one of Fonterra's most important strategic markets, receiving around a quarter of our production. Selling the farms will allow us to focus even more on strengthening our Foodservice, Consumer Brands and Ingredients businesses in China," he said.

Completion of the sale, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to occur within this financial year.