News Fonterra
Will Fonterra withdraw from China?
Fonterra has invested hundreds of millions in the development of dairy farms in China in recent years. Now it seems that the New Zealand dairy cooperative is pulling out and divesting the loss-making dairy farms.
About 10 years ago, New Zealand Fonterra started developing dairy farms in China. Over the years, no fewer than 7 large farms, with a total of 31.000 cows, were set up in various places. In total, the cooperative invested about $1 billion in the project, but it never reaps the benefits. This is because the activities are very loss-making. In the first half of the broken fiscal year from July 2018 to June 2019, it cost the cooperative a whopping $21 million.
To reject or not to reject?
Fonterra has been debating whether to sell or keep the Chinese dairy farms for some time. “There are pros and cons to both options,” said Miles Hurrel, Fonterra's CEO, in April. With retention, Fonterra can continue to supply milk to fast-growing internet platforms in the Chinese market, such as Alibaba's Heme Fresh.
On the other hand, Fonterra wants to serve Chinese consumers with the New Zealand meadow milk, which it says is produced under high animal welfare standards. The CEO also acknowledged in April that setting up Chinese dairy farms has turned out to be a difficult process in retrospect, but did not want to say at the time what Fonterra's plans are in China.
Buyer seems to have been found
There are now strong rumors that Fonterra has found a buyer for the Chinese dairy farms. Hurrel has yet to officially confirm the rumors, but says there is serious interest. The CEO promises that there will be an update if there is any news. The analysts do not assume that Fonterra will be able to recoup the invested amount.
Fonterra's other activities in China are also not successful. Last year, for example, the cooperative had to pay more than $400 million write off on an investment in the Chinese milk powder producer Beingmate. Although these activities on Chinese soil are difficult, the cooperative is successful in China in terms of exports, because more than 30% of Chinese dairy imports are supplied by Fonterra. In 2018, that was good for $3,8 billion.
Wouter Job
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