Arla Foods has announced plans to increase its turnover in China fivefold by 2016 – to almost £400m – after signing a wide-ranging co-operation agreement with a leading Chinese dairy company.
The company is investing DKK1.7bn (£186m) to acquire an indirect shareholding of around 6% in China Mengniu Dairy Co alongside Chinese food and beverages giant COFCO Corporation, which is Mengniu’s largest shareholder. It will also create the China-Denmark Milk Technology & Cooperation Centre with Mengniu to provide expertise on milk quality and traceability to Chinese dairy farmers.
In addition, it has agreed with Mengniu to expand the Arla brand into new product categories and offer a wider range of Arla products to Chinese consumers. Arla has been selling powdered milk products to China through a joint venture with Mengniu since 2005 but will now extend its Chinese offering to a full range of dairy products.
Arla said the agreements could boost its total turnover in China fivefold by 2016. In 2011, Arla’s turnover in China was about DKK700m (£76.5m).
Dairy consumption in China was growing fast and the country was forecast to overtake the US as the world’s biggest market for dairy products in 2020, Arla said.
“With the growth rates that are driving the country forwards, now and in the years to come, it is crucial for Arla to gain a solid foothold in the Chinese market,” added Arla chief executive Peder Tuborgh.
“These agreements will increase our exports to China significantly over the coming years. It will contribute positively to our cooperative owners’ milk price from day one, as we are able to add more value to milk that we otherwise would have to sell on the global bulk trading market, where profit is lower historically.”
Tuborgh called plans to increase cooperation with Mengniu selling Arla-branded products in China a “breakthrough”. “It will cement the Arla brand as a trademark for international quality, not just within powdered milk but also in other categories,” he added.
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