Fonterra decides to sell its China-based JV farms

Summary

  • New Zealand’s dairy giant, Fonterra, decides to sell off its two joint venture farms located in China.
  • The sale is likely to be completed by June end, with Fonterra expected to receive an enormous amount as the sale proceeds.
  • AustAsia, a Singapore-based firm, has agreed to purchase the farms.

Fonterra Co-operative Group Limited (NZX:FCG) is New Zealand’s prominent dairy co-operative, which supplies milk and dairy products to more than 140 countries and boasts famous brands like Anmum, Anchor, NZMP, Anlene and Farm Source in its kitty.

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The Group has consented to sell its two joint venture farms based in China's Shandong province. The sale is unconditional and requires no legislative approvals.

Singapore-based AustAsia Investment Holdings will take over the said farms for NZ$163.4 million (US$115.5 million) and the sale is anticipated to be completed by 30 June 2021.

Japfa Ltd., which is a Singapore-based agri-food company, has a 75% stake in AustAsia, the latter being a raw milk producer.

It is noted that Fonterra has a 51% stake in the JV and will receive total sale proceeds amounting to NZ$88 million (US$62 million) on completion of the deal.

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What does FCG's CEO has to say about the sale?

Miles Hurrell, Fonterra’s CEO, stated that the said sale was a significant event in Fonterra's calendar and would hugely benefit the Group, thereby helping it to focus more on its quality natural dairy.

It is pointed out that under Hurrell's leadership, FCG has started concentrating back on the NZ milk business, which is its core and vital trading activity, selling offshore and underperforming assets and, at the same time, undertaking a prudent cost approach to fortify its profits and earnings.

Hurrell further opined that the Greater China region was one of the most important international markets for FCG and the Group is determined to supply its highest-quality milk in Chinese markets.

FCG’s decision to sell its share in the JV comes after the sale of its two fully owned China farming centres during the start of the second quarter this year.

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April 2021 witnessed sales of Chinese dairy farms by Fonterra

As the Group pulls back from its intercontinental expansion strategy, Fonterra in April 2021 sold its two wholly owned China farming hubs based in Shanxi and Hebei provinces for a whopping NZ$552 million.

The sale was made to Inner Mongolia Youran Dairy to reduce FCG’s debts.

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Expansion strategy criticised by Fonterra farmers

It must be mentioned here that the Group’s 10,000+farmers community heavily condemned its disastrous overseas expansion strategy, following which Fonterra has now retreated to focus on its core business strategy of milk production and is selling its overseas assets.

On 29 June, at the time of writing, the shares of Fonterra Co-operative Group witnessed a jump of 3.28% and was trading at NZ$3.460.

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