Top milk supplier Fonterra is selling its dairy farms in China

Posted October 5, 2020 5:22 a.m. EDT

— Fonterra, the world's biggest dairy business, is selling its farms in China as it retreats from global expansion.

The New Zealand-based company announced Monday that it is selling its Chinese farms to local rivals for 555 million New Zealand dollars ($369 million). CEO Miles Hurrell said the deals will allow Fonterra to focus on areas in which it has a competitive advantage.

"Selling the farms is in line with our decision to focus on our New Zealand farmers' milk," he said in a statement, adding that the proceeds would be used to pay down debt.

Fonterra started building farms in China in 2007 as a way to tap into the country's growing fresh milk market. Chinese customers have long trusted overseas dairy brands for safety and quality — a preference that grew after a massive scandal involving tainted baby milk in 2008.

But the business has been costly to operate. Last year, Fonterra wrote down the value of the farms by $135 million.

"There have been several events over the years, highlighting a higher level of risk in operating the farms than previously anticipated," the company said in its annual report published last September.

Hurrell said at the time that growing demand for fresh milk in China suggested that prices would likely rise in the future, but the company wasn't sure when that would happen. As a result, Fonterra would look at "how we can best unlock the value in the farms." He said the company was focusing on prioritizing its New Zealand milk supply and "simplifying our global portfolio."

The sale underscores how difficult it has been for Fonterra to find success overseas. The company lost more than 600 million New Zealand dollars ($400 million) last year, largely because of trouble with its business in China, Brazil and Venezuela.

The Chinese farms aren't the only investment in the country that has soured. Last year, Fonterra announced that it would reduce its stake in Chinese infant milk maker Beingmate, a partnership it called "disappointing."

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