The Chinese investors seeking a stake in New Zealand dairying are heavily targeting the markets for imported infant formula in China, which have soared since the 2008 tragedy surrounding melamine contamination of milk.Natural Dairy (NZ) Holdings Ltd, a Ho
The Chinese investors seeking a stake in New Zealand dairying are heavily targeting the markets for imported infant formula in China, which have soared since the 2008 tragedy surrounding melamine contamination of milk.
Natural Dairy (NZ) Holdings Ltd, a Hong Kong-based mining company, is being used as a shell to acquire New Zealand dairy farms and build a processing plant which will enable it to market New Zealand milk in China as coming from its own farms and being manufactured in its own plant.
"If you've got one child and you've got a choice of buying Chinese infant formula or New Zealand, it's an easy decision", a lawyer representing the company in its New Zealand acquisitions, Kerry Knight, of Auckland law firm Knight Coldicutt said today.
There had been a surge of demand for imported infant formula in China since the melamine problem, which injured over 300,000 infants and killed at least half a dozen. The Sanlu dairy company -- in which Fonterra had a minority stake -- was a key offender, and was shut down, but Fonterra has since sold significantly more New Zealand milkpowder for consumption in China.
Mr Knight told NZPA that this focus on vertical integration of exports to China might mean the new business does not seek up to 50 million litres of raw milk from Fonterra -- so-called "statutory milk" which the big cooperative can be required to supply to level the playing field for smaller rivals.
"The (Chinese company's) marketing says: 'I own the pasture, the cows, and I'm controlling the whole lot'," Mr Knight said. It could be careful about sourcing milk from somebody else's farms for this reason.
"Their whole branding is around this control thing, so if they start off on the wrong foot (by using Fonterra milk) it's not going to work."
He noted few other New Zealand dairy companies apart from Fonterra could claim to similar ownership of their exports from the pasture to the shop.
Fonterra -- which expects China to be the world's largest dairy market in 25 years -- said today that demand there will triple over the next decade to be worth about $US70 billion. It is expanding its own milk production in China, spending $25 million to build two new dairy farms, in addition to its existing one, so that it can control the quality of the milk it uses.
China is New Zealand's third-largest export market, and their free-trade deal signed in 2008 will phase out Chinese tariffs on New Zealand-sourced dairy products over 12 years.
Mr Knight said the Chinese company was "highly entrepreneurial" and was seeking sites in the North Island, within economic tanker distances from its planned farms, for its milk processing plant.
The biggest delay was likely to be gaining resource consents, so it was paying the most attention to sites that already had suitable consents or something which could be modified.
There were a lot of smaller sites such as former meatworks, which would be difficult to enlarge, and there were a few bigger ones which would need a lot more capital put into them.
"They have spent six months talking to people, and once they get the cash raised -- which we think will be over the next four weeks or so -- then they're going to be negotiating seriously," said Mr Knight, a property lawyer.
"It will be for something that's got a consent or something close to a consent."
Until the plant was ready, the initial 29 farms associated with the Reporoa-based Crafer family would continue supplying Fonterra.
Mr Knight said the benefits of the deal -- which would be based on capital rather than borrowings -- outweighed any xenophobic reactions in New Zealand.
"People might be a bit anti the Chinese buying land, but at least they're paying cash for it," he said.
