China to get new dairy hub

Updated: 2014-07-16 11:27

By Amy He in New York (China Daily USA)

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US-based Abbott Laboratories, one of the biggest infant formula sellers in China, is getting deeper into milk production for the world's most populous country by building a dairy farm hub with New Zealand company Fonterra.

The $300 million joint investment with Fonterra is expected to begin producing milk by the first half of 2017.

The companies said that the farm hub will contain up to five dairy farms and 16,000 dairy-milking cattle. Pending regulatory approval, the hub could produce up to 160 million liters of milk annually, the companies said in a statement on July 11. Fonterra is the world's largest dairy exporters, currently with two farming operations in China, one in Shanxi province and one in Hebei province.

"We're pleased to partner with Fonterra, a global leader in dairy science, on this alliance to build dairy capacity in China," said Abbott CEO and Chairman Miles White. "This is a very important step in our growing commitment to Chinese consumers."

Theo Spierings, chief executive of Fonterra, said that the farming hubs are "a key part of our strategy to be a more integrated dairy business in Greater China, contribute to the growth and development of the local Chinese dairy industry, and help meet local consumers' needs for safe, nutritious dairy products."

With Illinois-based Abbott being a major infant formula seller in China and Fonterra providing the company with many of its dairy ingredients, there were "overlaps between areas of interest" between the two companies, Abbott spokesman Peter Paradossi told China Daily. So while Abbott and Fonterra have "separate business strategies, there are some common elements there that we felt were worth exploring, and as a result the JV came out of that," he said.

The location for the arm hub has not been determined, Paradossi said.

Abbott and Fonterra's partnership comes as China's consumption of dairy products continues to be robust, despite slower economic growth in the country. After fears over domestic food safety, Chinese consumers have relied on overseas products, importing the majority of the country's dairy goods from New Zealand, Australia, and Oceania. Because of inclement weather in New Zealand last year - China's largest dairy importer - the US dairy industry has found new opportunities in the world's second-largest economy, and are increasingly looking to cater to the Chinese buyer, which includes producing infant formula.

"China is expected to be one of the top consumers of dairy in the world by 2018, so there's a growing demand for dairy in China," Paradossi said. "We're looking to directly contribute to the growth and sustainable development of the Chinese dairy industry. With the easing of the one-child policy in China, the industry needs to prepare for growth in the infant category."

In June, Abbott opened a new manufacturing plant in Jiaxing, Zhejiang province, one of the company's most technologically advanced. The 120,000 square-meter facility manufactures the company's Similac QINTI infant formula and the product was made available in more than 200 cities last month.

"With 17 million babies born every year, there is a growing demand for innovative, high quality nutrition products designed for Chinese consumers," said Roger Bird, general manager of Abbott Greater China.

China relaxed its one-child policy last year, which the US Dairy Export Council (USDEC) estimates could add anywhere from 700,000 to 2 million extra babies to feed every year, fueling the country's dairy consumption. Dairy demand is projected to increase to 61 million tons in 2024 from the current 43 million tons.

Combined with the country's low ability to produce enough dairy domestically to cater to demand, the US dairy industry will continue to benefit, adding growth to an industry that has faced slow expansion at home. The US exported $327.8 million worth of dairy products to China in the January to May period this year, which is up 67 percent from the same period last year, the largest percent increase recorded of any country. China is the US' fifth-largest market for dairy exports

(China Daily USA 07/16/2014 page2)