(CN) Rapid development of factory farming in China

[Guest guest]

The New Zealand Herald

Wednesday 13th December 2006

by Stephen Ward, Agriculture Editor

 

Fonterra spreading out on China farm

Milking it: Fonterra plans a giant dairy farm in China to supply

quality milk for its joint venture San Lu.

 

Fonterra is stepping up its foray into the vast Chinese market by

establishing a dairy farm in China milking up to 3000 cows.

Such an operation would make the farm about as big as the largest

stand-alone New Zealand dairy units.

Fonterra said its move was aimed at supplying more quality milk to

its Chinese joint venture San Lu and boosting returns from the

business.

No figure was given yesterday for how much Fonterra planned to spend.

The company said it was discussing land acquisition with Chinese

authorities and was looking to start next October. It is expected

Fonterra will bear most of the farm's cost.

Milk supply director Barry Harris acknowledged yesterday that the

spending on the farm was not part of the co-op's original San Lu

strategy.

But he said the investment was not a cleaning-up exercise aimed at

dealing with the poorer-than-expected milk quality and returns. He

said the quality of Chinese milk was no surprise, returns from San Lu

were on track and the joint venture could continue to make a profit

with current supplies.

But the new farm provided an opportunity to ramp up San Lu's milk

quality and extract higher returns from the market, Harris said.

The farm would use Fonterra's expertise to provide " quality milk for

San Lu and meet the increasing demands for high-quality milk in

China " , he said.

Continued growth would be driven by having access to locally produced

quality milk.

" By developing a cow-to-consumer supply chain in China we will be

able to create value for our joint business and improve returns. "

Rapid expansion of milk production by China meant it was due to

increase from 22 billion litres a year to 40 billion litres in seven

years. Growth in dairy consumption in China was also very

strong. " While we expect to continue to import milk products from New

Zealand, to meet market demand in China we also need to be producing

high-quality, locally produced milk. "

Former Fonterra CEO and current PGG Wrightson director Craig Norgate

said the new China farm could prove very helpful.

" To the extent that it's about improving the quality of milk supply

for the consumer business then it's totally understandable. "

Dairy Farmers of New Zealand vice-chariman Lachlan McKenzie said

Fonterra farmers would want to see spending on a new China farm boost

their bottom-line earnings.

The co-op's 43 per cent stake in San Lu - a major Chinese dairy

market player - cost US$107 million this year.