New Zealand dairy giant Fonterra to divest China farms for $368m

New Zealand dairy giant Fonterra has agreed to divest its farms in China for a total of NZD555 million ($368 million) in two separate deals.

Fonterra said that it had successfully developed the farms alongside domestic partners.

According to Fonterra CEO Miles Hurrell, the sale of the farms will enable the company to prioritize the segments of its business where it has competitive advantages.

The Kiwi dairy company has struck a deal with Inner Mongolia Natural Dairy, a subsidiary of China Youran Dairy Group (Youran) to sell its two farming-hubs in Ying and Yutian for NZD513 million ($340.6 million).

In the other deal, Fonterra will divest its 85% stake in its Hangu farm to Beijing Sanyuan Venture (Sanyuan) for NZD42 million ($28 million).

Sanyuan holds a 15% minority stake in the farm and had exercised its right of first refusal to buy Fonterra’s interest.

The New Zealand dairy firm will look to use the cash proceeds from the two deals to pay down debt, as part of its previously revealed overall debt reduction program.

Miles Hurrell said: “For the last 18 months, we have been reviewing every part of the business to ensure our assets and investments meet the needs of the Co-op today. Selling the farms is in line with our decision to focus on our New Zealand farmers’ milk.

“China remains one of Fonterra’s most important strategic markets, receiving around a quarter of our production. Selling the farms will allow us to focus even more on strengthening our Foodservice, Consumer Brands and Ingredients businesses in China.”

The closing of the deals, which is based on receipt of anti-trust clearance and other regulatory approvals in China, is likely to occur by the end of this financial year.