The co-op has indirectly become a shareholder in Mengniu Dairy Co Ltd in a deal with the company’s single largest shareholder, COFCO Corporation. With Mengniu, it is establishing the China-Denmark Milk Technology and Cooperation Centre, to provide expertise on milk quality, traceability and controlled milk production on farms. Using Mengniu’s sales channels, it is expanding the Arla brand to new product categories, giving Chinese consumers access to more of its products.
Arla is spending $367m on a 6% stake in Mengniu. It will nominate one director to the Chinese company’s board.
The deals will boost Arla’s total turnover in China five-fold by 2016. Last year Arla’s total turnover there was $151 million.
Since 2005 Arla has sold mostly powdered milk products on the Chinese market, through a joint venture with Mengniu. Arla says it has decided with its partner to further develop its dairy business and extend this from milk powder to a range of dairy products.
Dairy consumption in China is growing faster than the nation’s rapidly increasing dairy production.
At about 10% growth, the Chinese dairy market is expected to pass that of the US in 2020. This makes it crucial for Arla to gain a solid foothold in the Chinese market, says Arla Foods chief executive 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 exports to China significantly.... It will contribute 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 [has been] lower historically.”
Tuborgh says reaching more Chinese consumers is a breakthrough for the Arla brand. “It will cement the Arla brand as a trademark for international quality, in powdered milk and other categories.”
China is one of Arla’s five strategic growth markets – along with Russia, USA, Poland and the region Middle East & North Africa – where
Arla works to create long-term growth opportunities.
“It is important for Arla that we continue our focus on developing our core markets in Northern Europe combined with long-term strategic investments on our distant growth markets, because that is where the biggest growth margins will be,” says Tuborgh.
