December 22nd, 2012
I first saw news about this several days ago, but haven’t had time to write anything about it, or even actually read the article. But it showed up in the Baidu news alert again today, as it has basically all week. Yili [*!warning! annoying autoplay ads!*], one of China’s bigger dairy companies, is planning to build an infant formula project in New Zealand. The numbers seem fairly big to me, but then again, I know nothing about setting up dairy plants. The plan is to:
…in New Zealand build a new infant formula project producing 47 thousand tons annually. Capital invested in the project will be NZ$214 million (RMB1.103 billion).
However, the project does still need approval from both the Chinese and New Zealand governments.
What interests me, though, is the paragraph whose first sentence says the announcement also mentioned certain risks, including:
milk price, amount of milk, raw materials
This paragraph mentions Fonterra an awful lot.
…Fonterra is New Zealand’s largest dairy enterprise, and independent producers use Fonterra’s milk price as a reference. Different models for setting prices will influence the companies’ ability to earn profits. Through signing long term purchasing agreements and reforming the milk price payment model, Yili will conclude with dairy farmers a price-setting model beneficial to the project.
So…. Fonterra might be getting some competition in the near future? If so, good.
It also mentions the seasonal nature of milk production in New Zealand, which would seem to be the reason Yili wants to produce infant formula and full cream milk powder – this way all the milk can be used with no waste.
But of course I have to wonder about the politics of this. How would this news be greeted in New Zealand? Assuming, of course, the NZ media notices… This Google NZ news search for Yili turned up articles in Dairy Reporter – a publication of William Reed media which apparently has a .co.uk website and a postal address in Montpellier, France, so probably not counted as NZ media – China Daily and Shanghai Daily, then half way down page one a bunch of articles in what looks to me like Turkish. And with the NZ media winding down for the silly season, I have to wonder how long until they notice.
At least Dairy Reporter’s article adds a couple of details. Pity about their rather unnecessarily stupid approach to allowing people to quote their articles. Quoting a small sample is fair use, isn’t it? Anyway:
- The announcement was made after Yili bought Oceania Dairy Group. So it already has an investment in NZ.
- Construction is planned to take 19 months, and production should begin in June 2014.
But this still leaves me with a lot of questions.
NZ$214 million looks like an awful lot of money, and dairy has become a very dominant industry in NZ with serious downstream environmental effects – algae-choked lowland waterways, for example. So if this project goes ahead, will it further lock all those economic eggs in the dairy export basket? Will it contribute – albeit indirectly – to the continued degradation of NZ’s lowland waterways? Will it really give Fonterra a bit of competition, and if so, will that be good or bad for farmers? Will Yili try to force milk payouts down so it can put a cheaper-than-average made in New Zealand formula on Chinese supermarket shelves? If the NZ media does notice, will this spark off yet another round of Yellow Peril handwringing, as the Shanghai Pengxin-Crafar Farms saga did? Or will the fact they’re wanting to build a dairy plant instead of buy up farmland allow them to dodge all that?
And how would Yili branded made in NZ formula be received in China? Would Chinese consumers accept this, or would they assume Yili is getting up to its old dodginess in another country? Or would it be written off as just another 假洋牌/fake Western brand?