Monday, 05 February 2018 08:55

Fonterra heading for financial disaster in China — expert

Written by  Sudesh Kissun
Chinese dairy expert Jane Li. Chinese dairy expert Jane Li.

Fonterra is heading for a bigger financial disaster over its shaky investment in Chinese company Beingmate, says Chinese dairy expert Jane Li.

Read Fonterra's response here.

She told Rural News that Beingmate has lost its top spot in the Chinese infant formula market and the company is in turmoil.

Li says she warned Fonterra’s top brass, including chairman John Wilson, 18 months ago about Beingmate’s “internal power struggle” and its problems in selling Fonterra’s Anmum brand infant formula.

Beingmate’s share price dropped to 5.31 RMB (NZ$1.14) late last week; Fonterra paid 18 RMB/share (NZ$3.88) for its 18.8% in 2015.

Li and her Kiwi partner Simon Page are the brains behind the successful NZ Milk Bar corporate stores in China, operating since 2012. 

They also owned the Biopure Health infant formula business; it was sold last year.

She is also a senior China analyst for Auckland-based World Civilisation Forum, an independent organisation “facilitating better understanding between China and the rest of the world”.

Li says she doesn’t believe the Beingmate business can be saved.

“It’s time for the Fonterra board and management to come out and tell shareholders the full story,” she says.

“Fonterra bosses should also have the guts to admit that investing $750m in Beingmate was a wrong move.

“I feel for Fonterra farmers; that’s why I have decided to go public with my concerns.”

Wilson invited Li to meet in early 2017 in Auckland and says she had several follow-up meetings with Beingmate marketing executives where “they asked for my help to put a few issues to Fonterra leadership to address market difficulties”.

After the meetings she tried to relay the concerns to Fonterra China head Christina Zhu and marketing advisor Andrew Stone.

Li also showed Rural News copies of emails she wrote to Wilson, the last sent on December 21, 2017.

In her email to Wilson, Li wrote that Beingmate marketing executives were frustrated at Fonterra not building the Anmum brand in China.

“Beingmate tried to have constructive conversation with Christina Zhu but it doesn’t seem like she can do anything,” she wrote.

Beingmate was also concerned about the wholesale price Fonterra was charging for Anmum.

“Beingmate is aware that the Anmum landed cost in China is very low, yet Fonterra’s price to Beingmate is very high meaning the distribution structure is uncompetitive.”

Li says as a result of the high wholesale price of Anmum, retail outlets are not keen to sell the products.

When Fonterra announced the Beingmate deal, chief executive Theo Spierings said Anmum products would be sold in at least 1000 Beingmate stores and distributed into 80,000 other outlets via its distribution network; but penetration is so far well short of that figure and the outlets are instead stocking other brands with better margins.  

Li said questions need to be asked on the due diligence Fonterra did on Beingmate’s store numbers at the time.

“There are certainly doubts in the market that Beingmate may not have had the store numbers they claimed,” she said. Li says patience with Fonterra among the ruling Communist Party is another concern for the co-op.

“After San Lu, the DCD incident and the false botulism saga, tensions were already strained. This terrible investment and public infighting won’t be rebuilding any confidence in Fonterra’s reputation or crisis handling ability. How many expensive mistakes can be tolerated over there?” 

More like this

"Our" business?

OPINION: One particular bone the Hound has been gnawing on for years now is how the chattering classes want it both ways when it comes to the success of NZ's dairy industry.

Farmers' call

OPINION: Fonterra's $4.22 billion consumer business sale to Lactalis is ruffling a few feathers outside the dairy industry.

Wasted energy

OPINION: Finance Minister Nicola Willis could have saved her staff and MBIE time and effort over ‘buttergate’ recently by not playing politics with butter prices in the first place.

Featured

Rural contractors call for overhaul of ag vehicle rules

Following a recent overweight incursion that saw a Mid-Canterbury contractor cop a $12,150 fine, the rural contracting industry is calling time on what they consider to be outdated and unworkable regulations regarding weight and dimensions that they say are impeding their businesses.

NZ seeks certainty on US tariff, says McClay

Trade Minister Todd McClay says his officials plan to meet their US counterparts every month from now on to better understand how the 15% tariff issue there will play out, and try and get some certainty there for our exporters about the future.

National

Machinery & Products

JDLink Boost for NZ farms

Connectivity is widely recognised as one of the biggest challenges facing farmers, but it is now being overcome through the…

New generation Defender HD11

The all-new 2026 Can-Am Defender HD11 looks likely to raise the bar in the highly competitive side-by-side category.

» Latest Print Issues Online

Milking It

Buttery prize

OPINION: Westland Milk may have won the contract to supply butter to Costco NZ but Open Country Dairy is having…

Gene Bill rumours

OPINION: The Gene Technology Bill has divided the farming community with strong arguments on both the pros and cons of…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter