Give a man to fish, he eats for a day. Teach a man to fish, he eats for a lifetime. This could be a telling analogy of Fonterra’s (ASX: FSF) relationship with China in the competitive dairy products market after the New Zealand based company sold farms owned in China for NZD $555 million to China-based companies.
Unlike other dairy companies which focus on exporting end-products to China, Fonterra set up farming hubs in China from scratch in a commitment to the domestic economy while sharing their expert farming knowledge.
“We’ve worked closely with local players, sharing our expertise in farming techniques and animal husbandry, and contributed to the growth of the industry,” said Fonterra CEO, Mike Hurrell.
“We don’t shy away from the fact that establishing farms from scratch in China has been challenging, but our team has successfully developed productive model farms, supplying high quality fresh milk to the local consumer market. It’s now time to pass the baton to Youran and Sanyuan to continue the development of these farms.”
Of the $555m sale, two farming hubs at Ying and Yutian were sold to Inner Mongolia Natural Dairy Co., Ltd, a subsidiary of China Youran Dairy Group Limited, while an 85% stake in
Hangu Farm has been sold for $42m to Beijing Sanyuan Venture Capital Co.
Following the sale of the farms, Fonterra does not expect the sale to impact their total sales portfolio too much.
“China remains one of Fonterra’s most important strategic markets, receiving around a quarter of our production. Selling the farms will allow us to focus even more on strengthening our Foodservice, Consumer Brands and Ingredients businesses in China,” said Hurrell.
“We will do this by bringing the goodness of New Zealand milk to Chinese customers in innovative ways and continuing to partner with local Chinese companies to do so.”
While China will continue to be a core focus for Fonterra, the Company reported strong exports growth elsewhere with exports to Europe increasing 5.9% and USA 9.8% through FY20 at a time when exports to Australia were down 8.4%. Exports to China remained strong, up 8%.
Funds secured by the sale will be used to pay down existing Fonterra debts
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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