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August 28, 2014

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Fonterra, Beingmate to team up for bigger slice of China market

NEW Zealand’s dairy giant Fonterra Co-operative Group Ltd said it plans to invest NZ$615 million (US$515 million) to form a partnership with Chinese infant food manufacturer Beingmate and drive the growing demand for high-end dairy products.

Fonterra will make a tender offer for a 20 percent stake in Beingmate at 18 yuan (US$2.93) apiece, according to a joint statement released yesterday.

After gaining regulatory approval, the two companies will set up a joint venture to purchase Fonterra’s Darnum plant in Australia as well as establish a distribution agreement to sell Fonterra’s Anmum consumer brand in China.

Beingmate will own 51 percent of the joint venture to meet Chinese regulatory requirements.

“By working together with Beingmate, we will strengthen our infant formula brand presence in China and link China to high-quality ingredients from New Zealand,” Fonterra Chief Executive Officer Theo Spierings said in the statement.

Foreign companies have been partnering with local dairy companies to grab a larger market share at a time when demand for high-quality dairy products has been rising in China following a series of food safety scandals. French Food company Danone said it would purchase 121.2 million new shares in Mengniu for HK$5.15 billion (US$665 million) to raise its stake in the company from 4 percent to about 9.9 percent.

The Chinese government has also been eliminating small dairy farms to ensure quality and boost supply.

Fonterra said that the purpose of the proposed JV will be to manufacture nutritional powders, including infant formula and other nutritional milk powders, at the Darnum plant, and will prioritize supply to the Chinese market.

China’s milk formula market jumped 21 percent to 91.2 billion yuan (US$14.8 billion) last year, and could double to US$31 billion by 2017, according to market research firm Euromonitor International.

Local companies still hold a dominant market share.

In the 52 weeks ended on June 13, Mengniu Dairy Co had 19.1 percent market share, followed by Yili Food Co’s 18.5 percent, according to Kantar Worldpanel’s survey of urban consumers.


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