Dutch dairy firm forms Chinese infant formula JV

Netherland's leading dairy company Royal FrieslandCampina and China Huishan Dairy Holdings Company announced Wednesday the launch of a joint venture to produce and sell infant formula under a new brand, in a bid to benefit from the rising demand for the product in the country.

Under the agreement, Royal FrieslandCampina will pay 700 million yuan ($114 million) to Hui-shan for a 50 percent share of Xiushui dairy factory owned by Huishan, and will purchase shares of Huishan on the Hong Kong stock exchange with total value of $30 million, according to a press release by the two companies.

The two companies will each hold a 50 percent stake in the joint venture.

The joint venture will locally source and produce infant formula for the Chinese market and have full control over the entire supply chain.

The raw milk will be supplied by Huishan's dairy farms and processed at Huishan's Xiushui dairy factory in China.

The new venture will also use FrieslandCampina's existing sales and distribution network in China.

To capitalize on the rising demand for infant formula in China, the joint venture will launch a new brand "focusing on the second and third-tier Chinese cities," James Chiu, chairman and CEO of Greater China at Royal FrieslandCampina, told the Global Times during a press conference in Beijing.

Chiu noted that the new infant formula will target different markets in China compared with its Friso brand infant formula, which has been catering to consumers in first-tier cities for around 20 years.

Currently FrieslandCampina sells Friso brand infant formula through e-commerce websites and major baby products stores.

For Huishan, the new brand of the joint venture "will not overlap with" its own infant brand, Yang Kai, chairman and CEO of Huishan, told the Global Times.

Huishan launched its infant formula in January 2013.

Royal FrieslandCampina CEO Cees 't Hart said at the press conference that the main reason for his company to choose Huishan as its partner is that the latter has a complete business chain including self-owned dairy farms to secure safe raw milk, which is similar to Royal FrieslandCampina.

The rising demand for high quality infant formula from Chinese consumers is the major driving force for the Dutch company to expand in the Chinese market further, according to Hart.

Currently in China, the average per capita consumption of milk products is only around 32.4 kilograms per year, less than one-third of the global average, Gao Hongbin, director of the Dairy Association of China, revealed during a meeting in 2013.

"The demand of infant formula will increase further due to China's new family planning policy, which allows couples to have a second child if one of them is an only child," Song Kungang, director of the China Dairy Industry Association, said at the press conference.

Following an infant formula scandal in 2008, in which melamine-tainted milk and baby milk powder killed six infants and sickened 300,000 others, Chinese consumers lost confidence in infant powder produced by Chinese dairy companies.

Many young Chinese mothers have shunned domestic infant powder brands, according to media reports in the past six years.