Fonterra bullish on dairy industry

Fonterra Co-operative, one of the world's major dairy producers, based in New Zealand, is building two more dairy farms in China, bringing the total to five by the end of 2013, Hong Kong-based Wen Wei Po reported Sunday, citing Fonterra vice president Peter Moore.

Fonterra's move comes in response to surging dairy consumption in China, the newspaper reported, as it aims to further expand its milking operations in the country, which has been riddled by domestic milk scandals.

The company predicted that by 2020, Chinese annual milk consumptions will reach 70 billion liters, almost twice the current annual amount of under 40 billion liters.

Data from the Beijing Orient Agribusiness Consultant Friday indicated that the milk supply gap in 2013 was expected to reach above 3 million tons, compared to 2.5 million tons in 2012.

Analysts said that more foreign dairy firms are likely to establish projects in China, in hopes of rapidly securing sizeable slices of a promising market when domestic dairy brands are still trying to claw their way back into consumers' confidence.

Scandal-hit dairy brands in China, including Mengniu, Yili and Bright Dairy, are busy buying overseas raw milk or establishing milking bases in foreign countries, especially New Zealand, given that domestic consumers have more faith in foreign raw milk, Chen Lianfang, a dairy industry analyst with Beijing Orient Agribusiness Consultant, told the Global Times Sunday.

The Shanghai-listed Inner Mongolia Yili Industrial Group Co announced on April 8 that the company had got approval from the government for its infant formula project in New Zealand, which is expected to boost the company's annual production by 47,000 tons.

In 2010, Shanghai-based Bright Dairy & Food Co obtained a 51 percent stake in New Zealand dairy product-processing company Synlait worth NZ$82 million ($66.5 million).

Fonterra used to hold 43 percent of Sanlu Group Co, a Shijiazhuang-based dairy firm, which was bankrupted by the melamine-tainted infant formula scandal in December 2008. Fonterra wrote-off NZ$200 million due to this investment.

Currently, 80 percent of raw milk used by Chinese dairy producers is imported from New Zealand and 90 percent of raw milk in New Zealand comes from Fonterra, said Chen.

Yan Qiang, an industry analyst with the Beijing-based Hejun Consulting, told the Global Times Sunday that China can produce raw milk of a quality to rival New Zealand's through strict management and advanced technology.

Besides, the global dairy giant Fonterra still has other concerns such as finding suitable farming locations, said Yan.

Yan predicted that Fonterra's move will likely ease public concerns over the quality of domestic dairy products.