Fonterra is hands-on with management control to ensure there is no repeat of the San Lu disaster.
There’s a lot riding for Fonterra as a result of its soon-to-be official partnership with China’s biggest infant formula-maker Beingmate a key play in their expansionary global strategy.
If Fonterra CEO Theo Spierings gets this one right, it will be a step change for our largest company in their biggest market.
Spierings told us that once the new partnership with Beingmate hits its straps, the joint venture will have a footprint in China unlike anything else seen in the dairy sector.
Really though – the partnership is a sign of the times in China. The Chinese Government is getting serious about the dairy sector after a series of high profile crises made a serious dent in consumer confidence. Stricter regulatory regimes, eliminating the bit-players and new rules for international players have changed the game in China.
Foreign players cashing in on China’s white gold rush were always expected to play their part in developing the local industry. Fonterra has close ties to agriculture universities in China and has worked with the government to train farmers.
But that’s not enough in the new environment.
Today, the name of the game is collaboration. The Chinese Government wants to see a number of large, high-quality milk pools upstream from a range of reputable sources, feeding into downstream processing networks run in partnership by foreign and local players. The strategy is that by using the strengths of each, industry standards can be lifted across the board – particularly where safety is concerned.
Fonterra’s China strategy has attracted its critics.
But the brute reality is, as Spierings spells out: «If you want to show commitment to a key market like China, you want to go into serious partnerships. But if you have nothing to offer, there’s no discussion. We have to build up.»
Fonterra has been heavily investing in China to build its presence in the market and has stepped up the pace on the development of major farming hubs. The second of five planned now not far from completion. Just two years ago, Fonterra’s China business was 200 people working in Shanghai on what was effectively an import business worth $1 billion. Last year, turnover reached $5.5 billion as staff numbers climbed to 1500 — a number Spierings sees climbing to 5000 soon.
Now with Beingmate as part of Fonterra’s extended reach, the path to market for infant formula takes a big step forward.
It’s the first Chinese partnership for Fonterra since their disastrous partnership with Sanlu and they’ve been careful to get this one right.
Negotiations and due diligence took a year to complete. It was rigorous and costly exercise undertaking deals of this magnitude in China – but don’t expect this to be a one-off.
Fonterra intends to remain active in China on the partnership front. While no negotiations are presently active, it’s an open eyes and open ears approach moving forward.
The criteria for those looking to get into bed with Fonterra is strict.
Any potential partners must be key existing customers for Fonterra’s New Zealand products, they must be willing to develop domestic upstream capacity in China and they must tick the boxes downstream with regards to distribution.
Another strong partnership however could be the key to finding major success with UHT products in China.
The rollout has so far only been successfully extended into a handful of provinces, but with increased capacity back home at Waitoa and plans for a Beijing UHT factory in the pipeline improving distribution networks is a top priority.
The company is finally moving to a greater value position in the Chinese market.
The challenge will be making sure the joint-venture works well.
While Beingmate has 51 per cent, Fonterra has management control.
That ought to ensure there is no repeat of the San Lu disaster.
Source: NZ Herald
