Chief executive Theo Spierings told the co-operative’s annual meeting at Waitoa that no more development for fresh milk production would be undertaken at this point.
He was responding to a question from a shareholder as to whether the farming venture in China was worthwhile long-term.
The two farming hubs developed so far as part of Fonterra’s strategy to produce one billion litres of milk in China by 2018 posted a $44 million loss before interest costs and tax in the financial year to July 31. Fonterra had invested $364m in farm development and livestock purchases, according to its latest annual report. The two farming hubs comprised seven farms.
The first farm hub was established eight years ago.
Spierings told the meeting the two hubs were currently producing 400 million litres of milk a year.
«We will not do any more steps for fresh milk at this point in time unless it fits with our ingredients customers’ desires or our food service business…» he told the meeting.
Fonterra responded to a request for more information on the decision, and the reasons for it, with a written statement attributed to Spierings.
«We will continue to develop our Chinese farming operations that have previously been announced to the market, as planned.
«It’s well known that our goal has been to grow our Chinese milk pool to one billion litres. We still believe this is the right path.
«However we will only invest in the milk pool when it makes good strategic or economic sense. Right now, local demand and prices for fresh milk do not support that. Our sales teams continue to drive opportunities with new and existing ingredients and foodservice customers to support this strategy,» the statement said.
Fonterra’s earlier announced strategy was to develop five farming hubs in China.
Its latest market announcement regarding farming development was in July last year, when it said it had signed a joint venture agreement with US pharmaceuticals giant Abbott to develop a farm hub milking more than 16,000 cows in China.
In September this year, a Fonterra spokesman said it had been unable to find a location for the joint-venture five farm hub. The Chinese government had not yet fully approved the deal, partly because the site was unknown.
No response on the future of the Abbott deal following Spierings’ annual meeting statement was available. The first Abbott deal farm was expected to be producing milk in the first half of 2017.
Fonterra Shareholders’ Council chairman Duncan Coull declined to comment. One of the council’s jobs is to monitor Fonterra’s financial performance on behalf of its 10,000-plus farmer-owners.
In September this year Spierings said Fonterra had decided it was no longer «strategically important» to own its own farms in China outright.
Fonterra has 25,000 cows in milk in China. They produced about 12m kg milksolids in the past year.
The company built its first China farm, Tangshan, in 2007 as a pilot to ensure it could produce «New Zealand standard» milk locally.
Source: Stuff
