Fonterra to establish a dairy farm in China

12 December 2006

Fonterra to establish a dairy farm in China

Fonterra Co-operative Group announced today that it will establish a best practice dairy farm in China to assist in the growth of Shijiazhuang SanLu Group, in which Fonterra holds a 43% stake.

Fonterra Milk Supply Director Barry Harris said the farming operation would utilise Fonterra’s on-farm knowledge and production expertise to provide quality milk for San Lu and meet the increasing demands for high-quality milk in China.

Mr Harris said the continued growth of Fonterra’s joint venture would be driven by having access to locally produced quality milk that could be used for premium nutritional consumer products.

“By developing a cow to consumer supply chain in China we will be able to create value for our joint business and improve returns to our respective shareholders.

“China’s dairy industry is expanding rapidly and milk production is expected to increase from 22 billion litres currently to 40 billion litres in seven years’ time.

“However growth in dairy consumption in China is also very strong. This will mean that while we expect to continue to import milk products from New Zealand, to meet market demand in China we also need to be producing high quality locally produced milk.”

Mr Harris said China is the fastest growing dairy market in the world and clearly presents opportunities for Fonterra.

“While New Zealand is recognised as a leader in on-farm and production capabilities, we don’t have exclusive rights to this expertise. The key is using this expertise wisely to benefit our shareholders and our business partners.

“The New Zealand dairy industry has a long history in China, selling New Zealand product. The next logical step was our joint venture with San Lu and now this latest development.

“We believe that one of the keys to sustaining the consumption growth in the Chinese dairy industry is to have top quality local milk supply. Establishing a farm here is one way we can participate in growing the industry further,” he said.

Fonterra is presently in discussions with local government authorities in China about securing land for the farming operation, which will milk up to 3000 cows and commence production in October 2007.

ENDS

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