Fonterra China venture gets nod

NEW Zealand dairy giant Fonterra has won approval from China’s Ministry of Commerce for its proposed partnership with Beingmate.

NEW Zealand dairy giant Fonterra has won approval from China’s Ministry of Commerce for its proposed partnership with China’s leading baby food maker, Beingmate.

The ministry had granted anti-trust and strategic foreign investment approval for the ­proposed partnership, Fonterra said in a statement on Friday.

The deal comes a year after Fonterra suffered major brand damage in China when it said it had found a potentially fatal ­bacteria in one of its milk powder products, triggering recalls of ­infant milk formula in China.

Tests later found the initial finding was incorrect.

The last approval brings Fonterra a step closer to the $NZ615 million ($590.5m) deal it announced last August, in a move to accelerate growth in China, its most important export market.

Once further regulatory approvals are cleared, Fonterra will proceed with a partial tender offer to buy up to 20 per cent in the Shenzhen-listed Beingmate.

The stake is now worth about $680m on the market, based on Beingmate’s market capitalisation of $3.4 billion. Fonterra’s total investment of $NZ615m in the deal also takes into account the proceeds from selling Beingmate a stake in an Australian plant owned by Fonterra.

Under the partnership, Fonterra and Beingmate will set up a joint venture to buy Fonterra’s Darnum plant, outside Warragul, west of Melbourne, as well as establishing a distribution agreement to sell Fonterra’s Anmum brand in China.

Beingmate, based in the eastern Chinese city of Hangzhou, is the country’s leading manufacturer of infant formula, nutritional rice powder and other infant foods.

The partnership will allow Fonterra, the world’s biggest dairy exporter, to use Beingmate’s established distribution network to sell its products. Until recently Fonterra had not marketed its own products to Chinese consumers, although it has been supplying wholesale infant milk formula to Chinese companies to be sold in their brands.

China is a crucial market for Fonterra, as the country imports about a quarter of New Zealand’s total dairy exports to feed growing demand for milk products, particularly milk formula, from its booming middle class.

The infant formula market in China, now worth $NZ18bn, will grow to $NZ33bn by 2017, according to Fonterra.

However, the company has been burned more than once in a country dogged by food safety scandals, with foreign firms coming under strong scrutiny.

By initiating the new partnership, Fonterra is attempting to move from a 2008 scandal when then-partner Sanlu was found to have added toxic melamine to baby formulas.

The group previously held a 43 per cent stake in Sanlu, which went bankrupt after the melamine scandal resulted in the death of six children and thousands falling ill.