Undeterred by recall, Fonterra seen pushing on with own-brand China plan

Tue Sep 24, 2013 7:29pm EDT
 
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By Naomi Tajitsu

WELLINGTON (Reuters) - Fonterra (FSF.NZ: Quote), the world's largest dairy processor, is moving ahead with plans to launch its own branded milk formula in China, undeterred by a recent botulism scare and Beijing's crackdown on foreign firms over alleged corrupt sales practices.

China is a magnet for foreign milk formula makers, with its $12.4 billion market expected to double by 2017. Foreign firms are under scrutiny, however, after reports alleged companies had bribed medical staff to recommend their products to new mothers.

Authorities have also fined a group of mostly foreign milk formula producers $110 million for price fixing.

New Zealand's Fonterra Co-operative Group (FCGHA.NZ: Quote), owned by some 10,500 farmers, supplies 90 percent of China's milk powder imports by selling its raw material to other companies to make products ranging from infant formula to cheese on frozen pizzas.

While China is its biggest export market, Fonterra has stayed away from selling its own branded baby formula there since a poisoning incident in 2008, when six infants died and thousands fell ill after Chinese dairy firm Sanlu was found to have added melamine to bulk up its infant products.

Sanlu collapsed as a result of the scandal, while Fonterra, which held a stake in the Chinese firm, was criticized for failing to blow the whistle sooner and more loudly.

On Wednesday, Fonterra reported an 18 percent lift in its full year profit, despite a drought trimming earnings. Net profit after tax for the year to July 31 was NZ$736 million ($608 million), compared with NZ$624 million last year.

Normalized earnings before interest and taxes (EBIT) fell to NZ$1 billion from $1.03 billion a year ago, in line with guidance given in July.   Continued...

 
The Fonterra logo is seen near the Fonterra Te Rapa plant near Hamilton August 6, 2013. REUTERS/Nigel Marple