Fonterra sells farms in China to pay down debt

Last month the co-op posted a profit to the end of July of $659 million.
Last month the co-op posted a profit to the end of July of $659 million. Photo credit: Newshub.

Fonterra is selling its farms in China for a total of $555 million, the dairy co-op announced on Monday.

Chief executive Miles Hurrell said the move to sell the farms was the result of a decision by the company to prioritise areas of the business where it has a competitive advantage and focus on New Zealand farmers' milk.

The company said Inner Mongolia Natural Dairy Co Ltd, a subsidiary of China Youran Dairy Group Limited (Youran), had agreed to purchase Fonterra’s two farming-hubs in Ying and Yutian for $513 million.

Fonterra had also agreed to sell its 85 percent interest in its Hangu farm to Beijing Sanyuan Venture Capital Co., Ltd (Sanyuan), for $42 million, Hurrell said.

"We've worked closely with local players, sharing our expertise in farming techniques and animal husbandry, and contributed to the growth of the industry," Hurrell said on Monday.

"We don't shy away from the fact that establishing farms from scratch in China has been challenging, but our team has successfully developed productive model farms, supplying high-quality fresh milk to the local consumer market. It's now time to pass the baton to Youran and Sanyuan to continue the development of these farms."

Fonterra said completion of the sale, which is subject to anti-trust clearance and other regulatory approvals in China, was expected to happen within the financial year.

The company said cash proceeds from the sales would go to paying down debt, as part of a previously announced debt reduction programme.

Last month the co-op posted a profit to the end of July of $659 million. That compared to a $605 million loss the year before.