Fonterra's dairy exports to China set to treble

Henry van der Heyden. Photo / Paul Estcourt

Fonterra has put the tainted milk affair at its former Sanlu joint venture behind it and is on track to treble its dairy exports to China to about 160,000 tonnes this financial year.

Fonterra chairman Henry van der Heyden yesterday confirmed a huge jump in demand as many Chinese opt for foreign milk powder products because they have lost faith in the local product.

At Fonterra's last monthly auction a tonne of milk powder was worth US$2235. At this price, 160,000 tonnes would return NZ$630 million.

Mr van der Heyden now expects Fonterra's inventory levels will probably be back down to normal seasonal levels by July 31 - the end of the company's financial year - reducing the need for the dairy co-operative to continue leasing extra warehouse space to house surplus product.

While he is reluctant to forecast how long Fonterra expects the jump in Chinese demand to last, he believes it could be for two or three years.

"I have no nervousness about the forecast $5.10/kg payout," he said.

Mr van der Heyden joined the business delegation accompanying Prime Minister John Key on his first official visit to China.

During the week-long visit, he opened Fonterra's 85 per cent-owned dairy farm at Tangshan, in northern Hebei province, and formally launched the corporate social responsibility programme Fonterra announced last year during the tainted-milk scandal.

Sanlu's 15 per cent stake in the Tangshan farm was seized by the Chinese Government last year - with all other joint-venture assets - when the scandal bankrupted the company.

Fonterra did not bid for Sanlu's 15 per cent stake when it was put up for grabs at the most recent auction.

But it has since told Sanlu's receiver it is interested in buying the stake.

The farm was established to provide a secure source of high-quality milk for top Fonterra brands.

Fonterra has now signed a deal with the Sims Trading Company - a subsidiary of Hong Kong company Dah Chong Hong Holdings - to replace Sanlu as the main distributor for the Fonterra consumer brands.

Fonterra's Anmum and Anlene brands are expected to be launched in China in July.

Anlene is a range of enriched dairy products to help adults' bone health; Anmum products increase folate and calcium levels for pregnant and nursing women.

A Fonterra ceremony at the Great Hall of the People in Beijing to establish its rural maternity and infant healthcare community programme under the umbrella of the Soong Ching Ling Foundation was attended by Chinese dignitaries and news media.

Fonterra will donate US$5 million to the foundation over five years to support construction of maternal and infant hubs in rural communities.