Fonterra's announcement that its investing in farms to expand milk production in China and India, seems in conflict with their opposition of the proposed Chinese farm investment of Crafar farms.
It is also interesting that this Chinese development will be an indoor housed operation, similar to that proposed by a group of farmers in the MacKenzie basin.
Is this a "do in Rome what the Romans do", or are the principles that drive NZ dairy at home forgotten when investing overseas? Are animal welfare principles that NZ industry follows to be adhered to in other countries, or do Chinese cows not care?
How happy are the Fonterra shareholders about this world wide production expansion being funded by their capital? Will the costs and profits from these ventures be transparent in the Fonterra accounts or will this be another NZ Farming Systems where large amounts of capital was wasted?
Fonterra and the Government of Yutian County of China today formally agreed to develop a new Fonterra dairy farm in Yutian County, Hebei Province. Fonterra’s NZD42 million (RMB200 million) investment signals the next step in its strategy to expand local milk production on the ground in China, following the successful pilot of Tangshan Fonterra Farm. Fonterra CEO Andrew Ferrier and Fu Zhenbo, deputy party secretary from Yutian County signed the agreement in a ceremony in Beijing today. “The fast-growing demand for dairy in China will be met by locally produced milk and we want to be working alongside the local dairy industry to help meet this demand.
The new free stall dairy farm, Fonterra Yutian Farm, will be developed on 42 hectares of land in Yutian County, Tangshan City, which is halfway between Beijing and Fonterra’s existing farm in Hangu, also in Tangshan City. The location has good access to water, feed supplies and locally grown crops like corn silage. It will consist of 12 barns, feed storage facilities, 24/7 milking parlour and waste water treatment systems.
The setup and management of Fonterra Yutian Farm will be similar to Fonterra’s first pilot farm in Hangu. Established in 2007, the farm has grown from 3000 cows to over 6000 and is producing around 25 million litres of milk for local consumption. The new farm is managed under a Risk Management Programme and audited according to Fonterra’s Standards of Excellence for milk production, to ensure the production of safe, traceable, high quality milk. Milk quality consistently meets the finest Chinese and NZ standards.
The farm will house around 3000 milking cows, imported from NZ and is expected to employ around 100 local people, most of whom will live onsite in a housing facility. The farm site construction will take around 12 months, with the new herd expected to start milking in November 2011.
9 Comments
4 months ago I wrote: China is not only eating us from outside in, but also from inside out - economically and politically.
Just one link of many critical about, describing the situation worldwide:
http://www.guardian.co.uk/environment/2010/sep/22/farmers-cow-super-dairy
We have to go back to the drawing board and design a new economic strategy in this country.
I believe Fonterra will be shown to be naive in their development of farms in China and India. Why are we teaching China how to improve their levels of milk production? Surely this runs the risk of reducing Chinese demand for NZ milk products in the future. Remember the flawed kiwifruit strategy of selling kiwifruit plants to other countries. China is currently our largest export market so why would we want to do this?
Fonterra are also providing NZ cows (genetic expertise). Why do we share our technology so easily with other countries. This is the classic Chinese strategy of getting the foreign company to invest and provide the technology. Later once the Chinese have mastered everything (they are very fast learners), they inevitably either kick out the foreign JV partner or start up a competing company using all the techniques they have learnt. China's legal system usually sides with the local company.
This whole strategy is deeply flawed and is undermining the position of the NZ suppliers who own Fonterra. Unbelievable!
Absolutely agree Micks. Small countries stick to quality, branding and diversity. Entrepreneurial skill developing niche markets makes our economy not greed and megalomania of a few. NZFarmers, practising along sustainable guidelines, be prudent otherwise something big is hurting you (again).
"Surely this runs the risk of reducing Chinese demand for NZ milk products in the future. Remember the flawed kiwifruit strategy of selling kiwifruit plants to other countries."
Yep I remember........
Short term profit long term loss...but hey, thats why the world is in a state it is now.
Many fonterra suppliers will agree with you Mick. A few years ago we had a set of head honchos running Fonterra where their ego was the main concern, not shareholders. It won't be long before most of Fonterra's revenue is sourced from it's overseas operations/farms. That's when it will be interesting to see what happens to the NZ supplier. Will they still be recompensed fairly or will they revolt.
While I fully understand that NZ cannot supply the increased demand in Dairy products, I believe Fonterra has to be very careful about what business it does get in to. I also believe that it is now at the beck and call of the Chinese govt. One only has to look at the melamine debacle to see that. 22 companies were gulity of selling melamine tainted milk. Only staff from San Lu, which had a foreign partner, was prosecuted. Also it was Fonterra that made the Chinese 'lose face' - something that will not be forgiven, even if we were on the side of the morally/ethically right. We are now contributing $5m USD over 4 years to a rural health programme, what's the bet at the end of the 4 years it gets continued?
With regards to the cows, the original herd is usually sourced from NZ but then bred on with US genetics.
China has Fonterra right where it wants us. It was reported in a Chinese newspaper that Fonterra will be investing 8/9 farms. When questioned on this, FOnterra directors said 'we are only looking at two. Yeah right, Fonterra directors might be, but whats the bet we end up investing in more than 2 more.
I will not buy dry shares over what I think I will need for any increases in production, as I will be stuffed if I am giving $ to Fonterra to go and invest my money in farms in China. I believe in the end our investments in China will need to be written off - just like San Lu.
RE Fonterra going into China. You touch on some interesting points. Here's a couple of thoughts worth considering. NZ businesses have a littered history of failure when venturing overseas. Bruce Judge, Alan Hawkins, Ron Brierly, Fletcher Challenge, just to name a few. Interesting thing is Fletcher Construction went into China in the 1990s at the beginning of the construction boom, and pulled out after two years, for good reasons. There is enough "intel" still available in the Fletcher Challenge camp you wonder why Fonterra dont go and enquire and take advantage of that know-how. Second: On a capitalisation basis Fonterra appears to be larger than the largest publicly listed company on the NZX. Is it too big to fail? A worthwhile question when it is considered SCF was a private company that became "too big to fail".
A History Lesson
the wool boom - episode 1
During the 1960's Australia and New Zealand enjoyed one of the greatest wool booms.
Cant find any documentation on the Australian effect but this on New Zealand Wool Boom
In 1972 and 1978 the oil shocks arrived. Oil went to $80pb. Petroleum based synthetic fibres became more expensive than natural fibres, which led to the next Australian and New Zealand wool boom, which continued into the early 1980's.
In the period 1985-1995 oil fell back to $10 pb with an inevitable collapse in wool demand.
Australia and NZ ended the 1980's early 1990's with massive wool stockpiles.
Extract from http://www.abc.net.au/landline/stories/s342945.htm (paragraph 13)
China, a new economic tiger, fuelled the market. Then in 1988 it withdrew totally. By 1991, seventy per cent of all wool produced was passed in at auction and bought by the AWC. The wool boom burst, inevitably and traumatically.
With this one act China discovered the enormous power it had, and how to exercise it to its advantage.
Extract from http://www.sirca.org.au/Papers/1998026.pdf
During 1980-1990 the Australian Wool Reserve Price Scheme continued to purchase virtually the entire Australian wool clip and nearly all private stockholdings world-wide at prices far higher than any foreign buyer or consumer was willing to pay. Eventually, the Australian Government walked away from it, realising there were limits to the extent that tax payers were willing to pay to bail out such stupidity. Today, Australia still has a huge unwanted wool stockpile.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.