Arla Denmark-headquartered dairy company and cooperative Arla Foods has made a series of announcements that will see it substantially strengthen its presence in China.
The company will become an indirect shareholder of China Mengniu Dairy Company along with Mengniu's single largest shareholder, COFCO Corporation, China's leading food and beverage company.
Arla has also agreed with Mengniu to establish the China-Denmark Milk Technology and Cooperation Centre, which is to provide expertise on milk quality, traceability and controlled milk production on farms. This agreement is a framework agreement supported by China’s Ministry of Agriculture and Denmark’s Ministry of Food, Agriculture and Fisheries.
A further agreement with Mengniu involves expanding the Arla brand to new product categories, giving Chinese consumers access to more Arla products.
5x increase in China turnover
These agreements are expected to increase Arla’s total turnover in China five-fold by 2016 (last year, Arla’s total turnover in China was approximately 700 million Danish Krone/€94 million).
For Arla, the investment in these agreements amount to 1.7 billion Danish kroner/€288 million, which will result in Arla effectively holding approximately a 6% interest in Mengniu. Arla may nominate one director to the board of Mengniu.
Since 2005, Arla has primarily sold powdered milk products on the Chinese market, through a joint venture with Mengniu.
Consumption of dairy products in China is growing faster than the nation’s rapidly increasing dairy production. With a growth rate of approximately 10%, the Chinese market is expected to surpass the United States as the world’s biggest market for dairy products in 2020, according to Arla
“Crucial” foothold
“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,” said Arla Foods’ CEO, Peder Tuborgh. “We are proud that China’s leading food company COFCO and most successful dairy company Mengniu have chosen Arla as their strategic business partner in China.”
“These agreements will increase our export to China significantly over the coming years,” he continued. “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 the profit is lower historically.”
Arla considers China to be one of its five strategic growth markets (along with Russia, USA, Poland and the Middle East & North Africa region.
Mengniu Dairy Company and its subsidiaries manufacture and distribute dairy products in China including UHT milk, milk beverages and yogurt, ice cream, and other dairy products such as milk powder and cheese. In terms of sales volume and sales, it is China’s largest dairy company and, according to Rabobank, is one of the world’s top twenty diary suppliers.
