Saturday, March 30, 2024

Co-operation at a strategic level

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There could be downstream as well as upstream benefits to Fonterra’s $615 million deal with Chinese infant food manufacturer Beingmate, starting at the onfarm level in that country.
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Fonterra chairman John Wilson said after the announcement of the move was made on Wednesday that discussions had been held about how the co-operative could help out in other areas.

“Beingmate has its own farms,” he said.

That meant there were opportunities to look at the two companies joining together more in farm management with Fonterra already having one hub of dairy farms up and running in China, a second hub started, and commitment to a third. 

“We’ve had discussions about more alignment,” he said.

“There may be benefits upstream and downstream in the future.”

Under the proposed joint venture between the two companies further co-operation may include a review of each other’s farm assets in China and development plans to assess possible co-investment in farms. The two partners may also look at developing new products for the Chinese market, developing new dairy products, and looking at joint investment in other Australian food markets which could supply China.

In 2005, Beingmate, which already had a dairy factory in Hangzhou province, established Heilongjiang Beingmate Dairy Company in Anda in the north of China, ensuring its milk supply came from the area above a latitude of 45° North.

This is where climate, soil and vegetation have major advantages for dairying development. The Chinese Ministry of Agriculture named Anda the country’s only “Town of China’s Dairy Cattle”.

In the same year Beingmate set up milk processing factories in the Hubei and Guangxi provinces further south. 

Three years later work on building the first stage of its dairy factory at Anda was completed, an infant milk powder production line opened at Yichang the following year, and the next a plant at Tangqi for baby food.

The company prides itself on stringent procedures from procurement, fresh milk collection, testing during production, and addition of nutrients right through to the manufactured product stage.

It employs over 500 staff in its research and development division, where there’s a strong emphasis on international co-operation.

Wilson said the response he’d received from Fonterra farmers to the Beingmate move was “overwhelmingly positive”.

“They’re saying it’s right on strategy.”

Beingmate had been a customer of Fonterra’s for many years and had six excellent dairy plants.

“We’ve got closer and closer over time,” he said.

That had led to earnest consideration of co-operating at a more strategic level as both saw benefits in that opportunity.

“It wasn’t like someone walking across the floor and asking you to dance.”

Fonterra would be able to make full use of Beingmate’s sales teams and distribution network under the licensing agreement for its Anmum infant formula, which would see a dramatic lift in the ability to boost sales in the growing Chinese market.

“It will put us in a completely new position.”

It was expected there would be significant consolidation in the Chinese dairy market as that country sought milk security and safety.

“That’s what’s driving this.”

There would be no change for the co-operative’s Australian suppliers sending milk to the Darnum, Victoria, plant which, as part of the deal, Fonterra and Beingmate will form a joint venture to purchase. 

“We will be able to maximise throughput of infant formula there but it may produce skim milk powder at times,” he said.

The co-op had a strong history in joint-venture arrangements which he said worked well, bringing both knowledge and strength to both parties. Distribution of other Fonterra products by Beingmate might occur in the future.

“We’ve got to get this bedded in, but it doesn’t eliminate future opportunities.”

Related story: More than $1 billion going into two major Fonterra projects

[codeblock id="56"]Code Block: Beingmate[/codeblock]
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