Fonterra sells China farms

New Zealand dairy multinational Fonterra has agreed to sell its China farms for a total of $555 million after successfully developing the farms alongside local partners.

Inner Mongolia Natural Dairy Company, a subsidiary of China Youran Dairy Group, has agreed to purchase Fonterra’s two farming hubs in Ying and Yutian for $513 million as the company steps away from global expansion.

The dairy company also agreed to sell its 85% interest in its Hangu farm to Beijing Sanyuan Venture Capital for $42 million.

Sanyuan has a 15% minority shareholding in the farm and exercised its right of first refusal to purchase Fonterra’s interest.

Chief Executive Miles Hurrell said in building the farms, Fonterra has demonstrated its commitment to the Chinese dairy industry’s development.

“We’ve worked closely with local players, sharing our expertise in farming techniques and animal husbandry, and contributed to the growth of the industry,” Hurrell said.

“We don’t shy away from the fact that establishing farms from scratch in China has been challenging, but our team has successfully developed productive model farms, supplying high-quality fresh milk to the local consumer market. It’s now time to pass the baton to Youran and Sanyuan to continue the development of these farms.”

Hurrell said the sale of the farms will allow the company to prioritise its business areas where it has competitive advantages after an 18-month review of the company’s strategic outlook.

“China remains one of Fonterra’s most important strategic markets, receiving around a quarter of our production. Selling the farms will allow us to focus even more on strengthening our foodservice, consumer brands and ingredients businesses in China,” he said.

“We will do this by bringing the goodness of New Zealand milk to Chinese customers in innovative ways and continuing to partner with local Chinese companies to do so. Our investment in R&D and application centres in China will support this direction.”

The sale, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to be completed within this financial year.

Fonterra expects to use the cash proceeds from the two transactions to pay down debt, as part of its previously announced overall debt reduction program.

Image credit: ©stock.adobe.com/au/yavuzsariyildiz