Fonterra Investing in Brazil
New Zealand's biggest company by revenue and the world's leading dairy exporter has announced plans to buy 850 hectares of land in the Goias State for a large-scale dairy operation.
Two milking operations using up to 3300 cows and New Zealand dairy genetics will be producing milk by late 2014.
Fonterra is currently developing its second dairy farm in China and investigating a joint venture dairy farm in India.
Director of supply and external relations Kelvin Wickham said as a starting proposition, milk from the Brazilian farm would go to the joint venture with Nestle, which was "looking for high quality milk".
He declined to say how much Fonterra was investing to establish the farm and if it planned more farms in Brazil. However, given its announcement called the farm a "pilot" project, additions seem likely.
The two farms in China have each cost around $42 million to develop.
"We have customers (in Brazil) asking for high quality local fresh milk. If we can own that share of their business, in addition to buying (in) New Zealand milk, we will have a better business relationship," Wickham said.
Fonterra shareholder watchdog council chairman Simon Couper said the venture would echo Fonterra's strategy in China.
"It is demonstrating an ability to produce an uncorrupted milk supply right through to the consumer. In China we are getting a premium for that."
The initial Brazil investment would be "small" and the council would be looking for a positive return on the company's overseas farming ventures, Couper said.
A former New Zealand Trade and Enterprise manager working in Sao Paulo, Brazil, as a consultant to Western companies wanting to enter South America's largest economy, said there are "enormous" potential rewards for rural New Zealand companies.
Tim King of BRAANZ Consulting said business models need to be well thought out. Brazil had a complicated tax system and was "very bureaucratic" so a partnership with a credible distributor was recommended initially.
Wickham said Fonterra was fortunate in that the New Zealand dairy industry had 20 years experience "on the ground" in Brazil.
Fonterra sourced 6.6 billion liters of its total 16 billion liters milk collection from overseas last year. Its international farming strategy is to complement New Zealand milk.
From the May 13, 2011, Prepared Foods' Daily News.