Fonterra Pens USD1.7 Billion Deal to Extend China Business to Lower-Tier Cities
Tang Shihua | Luan Li
DATE:  Nov 07 2018
/ SOURCE:  Yicai
Fonterra Pens USD1.7 Billion Deal to Extend China Business to Lower-Tier Cities Fonterra Pens USD1.7 Billion Deal to Extend China Business to Lower-Tier Cities

(Yicai Global) Nov. 7 -- New Zealand dairy giant Fonterra Co-Operative Group has penned a CNY12 billion (USD1.7 billion) deal with a Chinese firm to expand operations to lower-tier cities as ever-wealthier consumers opt to purchase better products.

The agreement, signed with supply chain company Xiamen C&D, was Fonterra's largest order in China in recent years, Paul Washer, Vice President, Commercial for Greater China, told Yicai Global at the first ever China International Import Expo being held this week in Shanghai.

Demand for high-end dairy products is on the rise in China as its consumers grow wealthier and opt to spend more on day-to-day goods. Two thirds of the nation are now prepared to pay more for natural ingredients, according to data from market researcher Nielsen.

Infant formula, for example, has gained 15 percent in price over the past year to CNY296 (USD43) a kilogram in August. Top-tier milk also now makes up more than 23 percent of sales after growing at a rate of over 50 percent.

In order to meet the increased demand, Fonterra plans to broaden its product range and dive deeper into third- and fourth-tier cities where there are now huge opportunities for dairy companies, Washer added.

Fonterra's Commercial for Greater China President Christina Zhu added that the firm has penned a large number of contracts with business partners in the country to expand its footprint there, and predicts the firm will generate sales of CNY18 billion (USD2.6 billion) in her jurisdiction this fiscal year.

Frothing Competition

Fonterra was not alone in its endeavors at the CIIE. Other world dairy leaders, such as Royal FrieslandCampina and Swiss Nestle all turned up to show off their products, including several which are being prepped to enter China.

FriedlandCampina's China business now makes up about 15 percent of its global takings, even though it has only been in the country for about 10 years, Rahul Colaco, executive director, told Yicai Global. The Dutch firm will increase investment in China as it looks to increase this proportion further, he added.

It will also introduce more new products, including those for adult and sports nutrition and milk drinks, to China and accelerate the formation of new sales channels in third- to sixth-tier cities.

China will be the key to global business growth, Chairman Frans Keurentjes added.

Editor: James Boynton

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Keywords:   Fonterra,FrieslandCampina