Just when Fonterra seems to be highly susceptible to pressure from rivals, Hong Kong-based He Run International Investment Ltd has announced it is constructing a $70 – $80 million dairy facility in New Zealand that will produce not only 25,000 tons of infant formula per year, but will expand its production line to include specialty products such as cheese.
This will be the third Chinese-owned dairy factory announced in New Zealand in as many years – following the $212 million Yashili infant formula plant on pace to begin production this October, and the recent announcement by Allied Faxi Food Co. that it is currently gathering contractors for the construction of its $10 million ice cream and frozen cream facility.
These will likely not be the last Chinese venture in the country either. District mayors, John Tregidga and Allan Sanson both state that investor interest in New Zealand from China is only growing, and New Zealand Trade and Enterprise general manager of capital, Quentin Quin states that over the past two years his group has been involved in approximately 90 business visits from China – approximately one per week.
The Chinese investors behind the He Run project are associated with a massive chain of Chinese supermarkets and have their own dairy brand, but are interested in securing a stable supply of New Zealand-produced dairy products, and are currently signing New Zealand dairy farmers to supply contract to begin in 2016.
Although Fonterra states that 87% of the country’s dairy farmers are still signed on with the co-op, other companies such as Open Country Dairy and Tatua have stated that they are turning away dairy farmers looking to join. The arrival of these new Chinese players will further lure producers away causing particular concern for Fonterra. If Fonterra’s milk supply falls below 80% of New Zealand’s total output, the special rule governing the co-op under the Dairy Industry Restructuring Act will no longer apply – potentially causing the biggest changes to the New Zealand dairy sector since Fonterra was launched.
If Fonterra’s supply does fall below the 80% proportion of the country’s milk, whether intentionally or not, many of the special restriction binding Fonterra’s business would be lifted, but many farmers located a far distance from Fonterra will be required to begin paying for milk pick up, and the way Fonterra conducts business will need to change, an in turn will change the entire New Zealand industry.
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