New Zealand dairy group Fonterra and Chinese infant food business Beingmate have established a “global partnership” to capitalise on growing Chinese demand for infant formula.

The companies will work together to create a “fully integrated global supply chain” that will utilise Fonterra’s milk pools and manufacturing sites in New Zealand, Australia and Europe to bring product “from the farm gate direct to China’s consumers”.

As part of the agreement, Fonterra will take a stake of “up to” 20% in Beingmate. Following regulatory clearance, Fonterra and Beingmate will then establish a joint venture to buy Fonterra’s Darnum plant in Australia. The venture will also establish a distribution agreement to sell Fonterra’s Anmum brand in China.

Fonterra CEO Theo Spierings said the link-up with Beingmate – a leading Chinese formula brand – will be a “game changer” for the world’s largest dairy exporter, which is pursuing a strategy to add value to milk by producing high-value ingredients for the infant formula sector, as well as driving branded growth.

Spierings added the deal will promote quality and safety standards in the Chinese infant formula sector, which has been dogged by safety scares including the 2008 melamine scandal that killed six babies and sickened around 300,000 more.

“Our partnership with Beingmate will show the benefits of an integrated and secure supply chain, starting in New Zealand – our number one milk pool – where we are fast-tracking investment in milk processing capacity to meet global demand,” he said.

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Spierings said Fonterra and Beingmate have a “shared commitment to international best practice quality standards and are committed to stringent processes and controls” around procurement of raw materials, fresh milk collection, production process testing, the addition of nutrients, pre-delivery inspection and tracking and tracing of manufactured product.

Beingmate chairman Wang Zhentai concurred. “Working together with Fonterra, we will create globally competitive, safe and secure supply chains to deliver high quality, advanced dairy nutrition to meet the needs of China’s growing population as well global consumers,” Zhentai said.

Zhentai added the partnership will also enable Beingmate to take a “significant step forward” in its globalisation ambitions.

Fonterra was itself caught up in a safety scare in China last year, when it recalled whey powder concentrate over concerns that it was contaminated with a bacteria that can cause botulism. Although the recall turned out to be a false alarm, Fonterra’s image was tarnished.

Check back for our analysis of the tie-up and the JV’s prospects in the Chinese infant formula category.