Fonterra wants to produce 1bn litres of milk in China by 2020

Fonterra wants to produce 1bn litres of milk in China by 2020

Fonterra is to join forces with US-based infant formula group Abbott on the New Zealand dairy giant's latest "dairy farm hub" in China.

The deal is subject to Chinese regulatory approval but, if approved, would be Fonterra's third hub in the country. The world's largest dairy exporter has a target of producing 1bn litres of milk in China by 2020.

Abbott and Fonterra will form a joint venture to invest a combined US$300m into the farm hub, the location for which has yet to be disclosed.

The hub will contain up to five dairy farms and more than 16,000 dairy milking cattle, producing up to 160m litres of milk a year. Cows for the hub will comprise animals either imported, or sourced from Fonterra's existing farm hubs. The first farm is expected to be completed and producing milk in the first half of 2017 and the remaining farms will start production in 2018.

Fonterra CEO Theo Spierings said: "Farming hubs are a key part of our strategy to be a more integrated dairy business in Greater China, contribute to the growth and development of the local Chinese dairy industry, and help meet local consumers' needs for safe, nutritious dairy products."

The first two hubs, in China's Hebei and Shanxi provinces, were set up by Fonterra alone.

Fonterra's reputation in China took a knock last year when it recalled a batch of whey powder concentrate over fears it was contaminated with a bacteria that can cause botulism. The recall led to Fonterra customers in China, including Danone and Abbott, withdrawing products from shelves. It also prompted Beijing to temporarily ban Fonterra products from entering China.

In January, China's General Administration of Quality Supervision, Inspection and Quarantine warned consumers not to consume Fonterra cream after a recall in New Zealand.

Fonterra recalled fresh cream sold under its Anchor and Pams brand in its domestic market after tests indicated products could be contaminated with E.Coli.

Beijing warned Chinese consumers not to eat Fonterra cream that may have been sent to them in the mail - even though the short shelf life, chilled product was not directly on sale in the country.

"We're pleased to partner with Fonterra, a global leader in dairy science, on this alliance to build dairy capacity in China," Abbott chairman and CEO Miles White said. "This is a very important step in our growing commitment to Chinese consumers."