New Zealand dairy cooperative Fonterra to exit China to focus on home market

NEW ZEALAND – New Zealand multinational publicly traded dairy co-operative, Fonterra has announced plans to divest from its businesses in China, in a move to prioritize its home market.

The company said that it will divest from its joint venture farms in China’s Shandong province and offload its remaining stake in Chinese infant formula manufacturer Beingmate.

The decision comes after Fonterra agreed to offload its own farms in the country for approximately US$369 million and is similarly in line with the company’s strategy to focus on New Zealand milk.

The divesture of its farms is expected to be finalised this financial year, while the sale of the JV farms to be completed this calendar year, FoodBev reported.

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In addition, Fonterra will fully exit its Beingmate investment before the current financial year ends.

 The dairy company first began selling its stake in the Chinese manufacturer in 2019 and as at January 2021, Fonterra’s shareholding stood at 3.94%, a figure which has since reduced to 2.82%.

Nevertheless, Fonterra CEO Miles Hurrell says Greater China continues to be one of its most important strategic markets.

“We remain committed to growing the value of our Greater China business, which we’ll do by bringing the goodness of New Zealand milk to Chinese customers in innovative ways and partnering with local Chinese companies to do so,” said Hurrell.

Fonterra also posted its half-year results where it posted a 22 percent fall in net profit to $391 million (about US$280 million) in the six months ending January 2021.

The company noted that the previous period’s profits were boosted by the sale of its half share in pharmaceutical supplier DFE Pharma and nutrition business Foodspring.

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Fonterra’s normalised profit, which excludes one-time items and better reflects the underlying performance of the business, rose 43 percent to $418m (about US$299 million).

Hurrell said the Greater China business was the “standout performer” in the first half, with pre-tax earnings up 38 per cent to $339m (about US$243 million), helped by a strong foodservice business, improvements in its consumer business, and China’s strong economic recovery following the initial impact of Covid-19.

The cooperative’s Africa, Middle East, Europe, North Asia and America’s market posted a 7 percent fall to $201m (about US$144 million) on reduced sales volumes and margins, which prompted it to move products into other more lucrative markets.

Hurrell reaffirmed the cooperative’s forecast milk price for farmers of between $7.30 and $7.90 per kilogram of milk solids, which would contribute an estimated $11.5b (about US$8.1 billion) to the economy.

He also reiterated the cooperative’s full-year guidance for normalised earnings of between 25 and 35 cents per share.

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