Home/Infant milk powder – a trilateral agreement for the Chinese market

Infant milk powder – a trilateral agreement for the Chinese market

The infant milk powder market in China is tempting and leading to the creation of strategic alliances. One is the agreement between the Danish dairy cooperative Arla, the French multinational Danone and the Chinese firm Yashili, which is part of the colossal Mengniu Dairy Co. The agreement was signed in New Zealand on the occasion of the inauguration of Yashili New Zealand‘s new infant milk powder plant in Pokeno near Auckland. Yashili New Zealand is a subsidiary of Yashili International Holdings Ltd and Mengniu Dairy Co.
Described as an “eco-system project”, the agreement will see the three companies work close together in supplying products into Arla and Danone’s markets. This is not something which is entirely new, however, as agreements were already in place between the companies. In October 2014 Danone acquired 25% of Yashili International from Mengniu for €450 million. This served to reinforce the alliance with which Danone secured a 4% stake in Mengniu in 2013, which later rose to 9.9%. In addition, Arla has a joint venture with Mengniu Dairy Co called Arla Mengniu. This latest agreement is therefore nothing but the completion of a process – that has been ongoing for more than three years – aimed at creating more favourable conditions for a better position in the immense Chinese market.

A global strategic partnership

The new plant in Pokeno required an investment of $220 million and has a production capacity of 52,000 tonnes of infant milk powder. Since 2010, Yashili’s subsidiary in New Zealand has been using New Zealand milk to produce milk powder to export to China. This exploitation of the stellar reputation New Zealand milk enjoys amongst the Chinese ties in with the strategy of the parent company Mengniu to operate with a multinational-like logic. Chinese investments in New Zealand have been boosted as a result, and continue to grow, and have led to the two countries setting themselves the goal of reaching a volume of trade of $30 million by 2020. It is an inviting scenario in which two big names have now appeared – that of the French multinational and the Danish cooperative. A global strategic partnership involving Europe, Australasia and Asia has therefore been sealed.

[Photo: ProjectManhattan]