Fonterra progresses negotiations in China for two new dairy farms

Posted by Nicole Eckersley on 21st September 2010

Fonterra has signed an agreement with the Government of Yutian County in China, which formalises the final stage of due diligence on two potential Fonterra dairy farm sites.

“This agreement is a positive step in the negotiation process with Yutian County,” said Fonterra China Managing Director Philip Turner.

“We’ve always said that we believe the bulk of China’s growing demand for dairy will be met by locally produced milk.

“Our first farming operation in China, Tangshan Fonterra Farm, which was established in Hebei Province in 2007, has succeeded in demonstrating that we can produce high quality milk at good volumes, profitably.

“By investing in two further farms, we are building on our commitment to build a safe, secure and sustainable milk supply for our customers in China.”

Despite the agreement, the deal is not yet finalised.

“We are pleased with today’s agreement and the progress to date but there are still some critical issues to be resolved by Yutian County before we can finalise any transaction,” said Turner.

The precise nature of the issues standing between Fonterra and the two dairy farms are not clear.

Yutian County is located around 115 kilometres from Tangshan Fonterra Farm.

The Tangshan farm was established as a pilot project to test Fonterra’s ability to produce New Zealand standard milk in China. Established with 3000 New Zealand cows, it has since grown to more than 5800 cows, half of which – on average – are milking. The imported New Zealand cows are now well into their third lactation after calving for the third time since their arrival in China. The farm produced around 25 million litres of milk last financial year.