Fonterra to sell China farms to local partners for $369m

Fonterra has agreed to offload its farms in China to a series of local partners for NZD 555 million (approximately $369 million), as it aims to focus on its home markets and reduce debt.

The deal includes the sale of two farming hubs in Ying and Yutian and an 85% stake in its Hangu farm, all three of which have been successfully developed alongside local partners.

The dairy cooperative says the deal is part of a strategic review and it expects to use the cash proceeds from the two transactions to pay down debt, as part of a previously announced overall debt reduction programme.

According to Fonterra, selling the farms is in line with its decision to focus on its New Zealand farmers’ milk. Following the transactions, the company also believes  it will be able to strengthen its efforts in its 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,” said Fonterra’s CEO Miles Hurrell.

As part of the agreement, Inner Mongolia Natural Dairy Co – a subsidiary of China Youran Dairy Group – will acquire Fonterra’s two farming hubs located in Ying and Yutian for NZD 513 million ($341 million).

Meanwhile, Beijing venture capital firm Sanyuan will purchase Fonterra’s remaining 85% interest in its Hangu farm for NZD 42 million ($28 million), taking its ownership to 100%.

In building the farms, CEO Miles Hurrell says Fonterra has demonstrated its commitment to the development of the Chinese dairy industry.

He added: “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.”

According to Hurrell, China remains one of Fonterra’s most important strategic markets, receiving around a quarter of its production.

The deal, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to close within the financial year.