Fonterra is building a local milk supply chain in China

Fonterra is building a local milk supply chain in China

Fonterra, the New Zealand dairy group, is to build its second dairy farm in China.

The company said today (20 October) that it would spend NZ$42m (US$22.7m) on a farm in Yutian Country in the city of Tangshan in China's north-eastern Hebei province.

Fonterra already has a farm in Hangu in Tangshan and chief executive Andrew Ferrier said the country was "a very important market" for the business.

"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," Ferrier said.

The new free-stall dairy farm, Fonterra Yutian Farm, will be developed on 42 hectares of land in Yutian County. The farm will house around 3,000 milking cows, imported from New Zealand and is expected to employ around 100 local people. Construction will take around 12 months, with the new herd expected to start milking in November next year.

A boost to Fonterra's local supply of milk could be crucial if the company decides to process milk locally again.

Fonterra's first processing venture in China collapsed in 2008 after the group's local partner Sanlu was found to have sold infant milk formula contaminated with industrial chemical melamine.

The scandal, which killed six babies and sickened hundreds of thousands of others, hit China's fledgling dairy industry with over 20 companies caught up in the contamination.

Fonterra's venture involved a stake in Sanlu and, although the dairy giant denied approving the use of melamine and was cleared of any wrong-doing, it wrote off its investment in its partner.

In the wake of the scandal, Fonterra told just-food last year that it would focus on growing its existing business in China, which included its Hangu farm, and that any more investment would be conditional on "having sufficient control of the supply chain".