Milk price in China key to Pengxin bid – Landcorp
The Crafar farms premium can be made up in the Chinese market, reports Kate Chapman.
New Zealand milk can fetch almost five times as much as domestically produced lines in China which prompted the Chinese bid for Crafar farms, politicians were told.
Shanghai Pengxin faces further court action in July after the High Court overturned the Government’s original acceptance of its bid for the 16 farms.
Last month, ministers announced they had again accepted the offer and the Chinese buyer said it hoped to be on the farms in the spring.
State-owned Landcorp will run the farms for Shanghai Pengxin and told Parliament’s primary production committee that the new owner was interested in securing raw milk and selling in Chinese supermarkets, but had no interest in processing.
‘‘Where they can really add value is in the market in China,’’ Landcorp chief executive Chris Kelly said.
Shanghai Pengxin can afford to pay a premium at the New Zealand end because they make it up in China.
Kelly said a litre of UHT milk from New Zealand retailed at 28 RMB (NZ$5.65) while a litre of Chinese milk sold for 6 RMB (NZ$1.20).
‘‘They believe that they can capture that top 28 versus 6 part of the market which will then create enough money for it to be a successful enterprise.’’
Landcorp began negotiations with Shanghai Pengxin because Kelly knew its New Zealand-based spokesman, Cedric Allen.
‘‘I ran into Cedric somewhere and said ‘oh that’s interesting about this Chinese thing; tell me about it’.’’
Shanghai Pengxin was represented by a local agriculture expert during negotiations, which took place after Landcorp’s bid was rejected by the Crafar receivers.
‘‘The receiver took great pleasure in ringing me and telling me to go away,’’ Kelly said.
‘‘Farming the land and selling to Fonterra, without any access to China, we couldn’t make the figures work at the sorts of sums the receiver felt that he could get from somewhere else.’’
Landcorp’s deal with Shanghai Pengxin was similar to a 50:50 sharemilking arrangement but used a sliding scale.
The SOE would get more of the revenue when the payout was lower and less of the revenue as it got higher. ‘‘What that does is lock in an ability for us to pay our fixed costs, within reason, whatever the payout.’’
Last week it was reported Shanghai Pengxin was in talks with Fonterra about processing milk from the farms.
Landcorp confirmed the Chinese company had not made a decision about which processor it would use, meaning it could still fall into foreign hands.
Production on the farms was picking up but Landcorp could improve it further, Kelly said.