Along with fast-tracking its expansion in milk processing capacity, Fonterra has teamed up with Beingmate, the company behind China’s number one domestically produced infant formula, to strengthen its presence in the Chinese market.

The deal could have implications here as Irish farmers supply about 12% of the world infant formula market. Output to date has been entirely from multinational firms like Abbott, Danone and Nestlé.

In 2012, Kerry Group signed a partnership agreement with Beingmate to supply dairy ingredients for infant nutrition applications in China. It has recently invested heavily in its Listowel facility in order to increase its output of demineralised whey, a key ingredient for infant nutrition products.

Production of infant nutrition products for Beingmate has recently commenced in Charleville.

The Fonterra deal would see milk coming from across the Fonterra milk pool and manufacturing sites in New Zealand, Australia and Europe. Under the terms of the deal, Fonterra is seeking up to a 20% stake in Beingmate. The two companies would then set up a joint venture and purchase Fonterra’s Darnum plant in Australia. A distribution agreement would sell Fonterra’s infant formula brand in China. Fonterra also said it would evaluate mutual investments in dairy farms in China.

Beingmate produces a vast range of products, for sale in over 80,000 retail outlets, aimed at mothers and babies, as well as a range of nutritional products for children.

“By working together with Beingmate, we will strengthen our infant formula brand presence in China and link China to high-quality ingredients from New Zealand,” said Theo Spierings, Fonterra CEO.

China is Fonterra’s number one market and this deal will not only increase volumes but also move product into higher value ingredients such as infant formula.

Chinese market

The Chinese infant formula market is worth about €11bn. However, it is the expected growth that is fuelling interest, due to increasing urbanisation, higher disposable incomes, a preference for premium brands and relaxation of the one-child policy. By 2017, the market is expected to be worth €21bn.

Recent food scares have seen the Chinese government focus on quality and consumer safety in the local dairy industry.

By forming this partnership and integrating the supply chain, Fonterra and the proposed joint venture would have full control of the supply chain.