Main milk supplier Fonterra sells its dairy farms in China

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

“The sale of the farms is in line with our decision to focus on milk from our New Zealand farmers,” he said in a statement, adding that the proceeds would be used to repay debt.

Fonterra began building farms in China in 2007 in order to take advantage of the country’s growing fresh milk market. Chinese customers have long trusted foreign dairy brands for their safety and quality – a preference that grew after a massive scandal involving contaminated baby milk in 2008.

But the business was expensive to operate. Last year, Fonterra reduced the value of farms by $ 135 million.

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

Hurrell said at the time that growing demand for fresh milk in China suggested prices would likely increase in the future, but the company was unsure when that would happen. As a result, Fonterra would look into “the best way to unlock the value of farms”. He said the company was focused on prioritizing its milk supply in New Zealand and “simplifying our global portfolio”.

The sale underscores how much Fonterra has struggled to succeed abroad. The company lost more than NZ $ 600 million ($ 400 million) last year, largely due to problems with its operations in China, Brazil and Venezuela.

Chinese farms are not the only investment in the country that has deteriorated. 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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