Fonterra plans to sell infant formula in China

Fonterra Co-operative Group Ltd, New Zealand's largest milk processor and dairy exporter, is aiming to launch its branded infant formula in China in the middle of the year and plans to set up a liquid milk manufacturing plant in the country soon.

The company's plan to expand its business from dairy farming to infant formula and milk manufacturing, which generate higher profit margins, is expected to strongly increase its presence as well as revenue in the lucrative Chinese dairy market, analysts said.

Fonterra has already been selling Anmum Materna products - formula for expectant mothers - in some regions in China and online.

To catch up with other global dairy companies operating in the market, Fonterra will sell Anmum Infant and Follow-On Formula in stores in China from the second half of the year in selected regions, and sell the brand throughout the country later in the year, Kate Hao, public relations manager for Fonterra China, told China Daily on Tuesday.

The company also plans to build an ultra-high temperature milk manufacturing plant in the country soon. This is an addition to a new manufacturing plant in New Zealand which opened early this year, Hao said.

Fonterra runs two milking farms in Hebei province, with another three under development, with the goal of producing 1 billion liters a year in China by 2018.

The company has remained watchful and cautious since Shijiazhuang Sanlu Group, partly owned by Fonterra, was involved in a melamine contamination scandal in 2008.

But now the time is ripe for Fonterra to re-enter the consumer market, said Song Liang, a dairy analyst at the Distribution Productivity Promotion Center of China Commerce, with Chinese consumers becoming keen to buy high-end milk and foreign infant formula products.

The preference for foreign milk brands among "irrational and over-sensitive" consumers in the country will continue to strengthen the dominance of foreign infant formula brands in first- and second-tier cities for at least five years, said Song.

The infant-formula market, worth 50 billion yuan ($ 7.97 billion), is estimated to grow to 80 billion yuan by 2015, he said.

With an average profit margin of 80 percent for high- and medium-level liquid milk brands, such products will serve as another driving force for Fonterra's growth in China, said Song.

New Zealand's milk powder, butter and cheese exports in February were up 24 percent year-on-year to NZ$220 million ($185 million), according to Statistics New Zealand.

Exports of milk powder to China rose 80 percent in value to NZ$106 million, with volume up 99 percent.

Tim Groser, New Zealand's minister of trade, said during a visit to Shanghai on Tuesday, where he was accompanied by Fonterra executives, "The trading relationship with China is going to be extraordinary in the current period.

"We have a wonderful relationship (with China) and we expect further significant growth here."