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Fonterra gives the green light to sell its farms in China

Fonterra has given the go-ahead to sell its farms in China for a total of US$555 million.

Inner Mongolia Natural Dairy Co., Ltd, a subsidiary of China Youran Dairy Group Limited (Youran), has agreed to purchase Fonterra’s 2 farming-hubs in Ying and Yutian for $513 million, according to a recent press release.

In addition, Fonterra has agreed to sell its 85% interest in its Hangu farm to Beijing Sanyuan Venture Capital Co., Ltd. (Sanyuan), for $42 million. Sanyuan has a 15% minority shareholding in the farm and exercised their right of first refusal to purchase Fonterra’s interest.

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Contribution to Chinese dairy

Fonterra CEO Miles Hurrell, says “We’ve worked closely with local players, sharing our expertise in farming techniques and animal husbandry, and contributed to the growth of the industry.

“We don’t shy away from the fact that establishing farms from scratch in China has been challenging, but our team has successfully developed productive model farms, supplying high quality fresh milk to the local consumer market. It’s now time to pass the baton to Youran and Sanyuan to continue the development of these farms.”

Focusing on NZ milk

Hurrell says the sale of the farms will allow the Co-op to prioritise the areas of its business where it has competitive advantages.

For the last 18 months, we have been reviewing every part of the business to ensure our assets and investments meet the needs of the Co-op today. Selling the farms is in line with our decision to focus on our New Zealand farmers’ milk."

“China remains one of Fonterra’s most important strategic markets, receiving around a quarter of our production. Selling the farms will allow us to focus even more on strengthening our Foodservice, Consumer Brands and Ingredients businesses in China.

“We will do this by bringing the goodness of New Zealand milk to Chinese customers in innovative ways and continuing to partner with local Chinese companies to do so. Our investment in R&D and application centres in China will support this direction,” says Hurrell.

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Completion of the sale, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to occur within this financial year.

Fonterra expects to use the cash proceeds from the 2 transactions to pay down debt, as part of its previously announced overall debt reduction programme.

Source and more info: Fonterra