Fonterra partnership wins support
Industry commentators and farmer are backing Fonterra’s new joint venture with Chinese infant food manufacturer Beingmate, Gerald Piddock and Gerard Hutching reports.
Fonterra’s new global partnership with Chinese infant food manufacturer Beingmate has won the backing of industry commentators and Federated Farmers. The new partnership would help meet China’s growing demand for infant formula and would create a global supply chain from the farm gate direct to China’s consumers, using Fonterra milk and its manufacturing sites here and in Australia, and Europe.
Waikato University professor of agribusiness Jacqueline Rowarth said the agreement would provide Fonterra with the best route of getting its products to the consumer instead of selling to other businesses.
Any food safety risks had been greatly reduced following recent moves by AsureQuality and PwC New Zealand to establish a food safety centre in China.
It had recently appointed Agmardt chairman Dean Nikora to lead the new centre, she said.
That meant a problem was less likely, Rowarth said.
A food safety centre was first mooted in April last year after AsureQuality and PwC New Zealand signed a collaboration framework agreement with China Mengniu Dairy Company Limited and COFCO Corporation to investigate the development of a China-New Zealand agribusiness service and food safety centre of excellence in China.
The Chinese dairy industry had changed hugely since the melamine crisis in 2008 as China tried to modernise its dairy industry and improve the standards of its domestic milk supply.
‘They are subsidising milk production of the modern type by 25 per cent so they can move into the modern era,’’ Rowarth said
New Zealander and old China hand David Mahon said Beingmate was a respected private company.
Mahon is the managing director and chief investment officer for investment management company Mahon China.
He said Beingmate emerged after 2008 as one of the few not implicated and had gained real scale.
The cooperative’s new partnership with Beingmate will create a global supply chain from the farm gate direct to China’s consumers, using Fonterra milk.
‘‘They came into a really very competitive market and took number one position in domestic branded infant formula,’’ Mahon said.
‘‘Historically they were a children’s product company which has focused entirely on infant nutrition since the beginning of 2014.
‘‘ They have taken an original approach by placing infant nutrition specialists, or people who wear white coats and appeared to be specialists, in their stores to advise mothers.
‘‘They understand that it is as much about selling the story of your product in China as the product itself,’’ Mahon said.
The joint venture was good news for Fonterra, and a good move strategically for New Zealand because it was a shift towards bringing greater value than exporting just whole milk powder.
However, he said Fonterra would have challenges in dealing with a Chinese private company since it was not as formally structured or managed as a New Zealand company.
They would have to be sure about questions of governance and transparency.
Mahon said Fonterra had been relatively untouched by the 2008 scandal involving the company’s Chinese partner Sanlu, when it was discovered melamine had been added to infant formula.
‘‘Chinese consumers did not know that Fonterra was Sanlu’s partner because Fonterra was relatively passive.
‘‘In fact there is tremendous gratitude on behalf of the Chinese because Fonterra and the New Zealand government brought the evidence of the contamination to attention of the Chinese government. This allowed the Chinese to blow the whistle on their own industry.
‘‘If Fonterra had announced the melamine issue independently many in the industry would have run for cover and more children would have died. It was a very bold move on behalf of Fonterra and the Ministry of Foreign Affairs and Trade,’’ Mahon said.
Federated Farmers said Fonterra’s announcement was a great boost of confidence in New Zealand agribusiness and that, along with the half a billion dollar investment in milk plants in Waikato and Southland showed how wrong it was for people to consider milk as a low-value export.
‘‘Let’s say it has been a long time between drinks, but it is right to get back on the horse, dairy chairman Andrew Hoggard said.
‘‘I feel Fonterra supplier-shareholders will back this investment of up to $615 million. It shows just how international Fonterra’s global reach is, something many Kiwis don’t understand.’’
That sentiment was shared by Fonterra Shareholders’ Council chairman Ian Brown.
The partnership with Beingmate was an important step to increasing access to the high-value Chinese nutritional powders market and, in doing so, generating greater profit and returns for Fonterra farmers.
‘‘China is our number one market and demand for our products continues to grow there.
‘‘Having recently visited the China market it’s difficult to overstate the importance of having a local presence and with Beingmate’s established networks and relationships, this joint venture will enable us to move further towards consumer products that add margin over the value of milk.’’