Fonterra, Abbott to build dairy farms in China

WELLINGTON, July 11 Thu Jul 10, 2014 6:30pm EDT

WELLINGTON, July 11 (Reuters) - New Zealand dairy co-operative Fonterra and U.S. healthcare company Abbott are planning to build up to five dairy farms in China to secure domestic supply to meet rising demand for milk in the world's second-largest economy.

In a statement issued on Friday, the world's largest dairy exporter and Abbott, a major infant formula seller in China, said they had signed a $300 million agreement to build up the farms in one of the world's fastest growing dairy markets, which would produce up to 160 million litres of milk each year.

The planned hub, whose location is yet to be decided, would be Fonterra's third, following similar dairying centres in China's Shanxi and Hebei provinces. If the plan is approved by Chinese authorities, the companies said the first farm would begin producing in early 2017.

"Farming hubs are a key part of our strategy to be a more integrated dairy business in Greater China, contribute to the growth and development of the local Chinese dairy industry and help meet local consumers' needs for safe, nutritious dairy products," Fonterra Chief Executive Officer Theo Spierings said in a statement.

The deal would build on the existing relationship between the two companies, as Fonterra counts Abbott as a wholesale client of its milk powder products, which include Similac infant formula brand.

Abbott is expanding its production capabilities in China, opening an infant formula plant near Shanghai in June.

"This strategic partnership gives us flexibility for the future on however we use milk," an Abbott spokesman said.

Abbott recalled some of its milk formula brands in China and Vietnam in August after a contamination scare involving products containing Fonterra-produced ingredients, which proved to be false.

Abbott in April said the recall crimped sales of milk formula products by $75 million in the first quarter.

Global milk formula makers are pushing to capitalise on increasing dairy demand from China, where growing middle classes are developing a voracious appetite for cheese, milk formula and other products.

(Reporting by Naomi Tajitsu; Editing by Cynthia Osterman)

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