On December 4, New Zealand's largest dairy company Fonterra Co-operative (hereinafter referred to as Fonterra) formally disclosed its performance in the first quarter of fiscal year 2021 (August 1, 2020 ~ October 31, 2020)

The data show that in the first quarter of fiscal year 2021, Fonterra achieved total revenue of NZ$4.181 billion, a slight decrease of 1% year-on-year; adjusted EBITDA amounted to NZ$250 million (about 1.15 billion yuan), a year-on-year increase of NZ$72 million, an increase of around 40%.

For its part, Fonterra said that sustained customer demand for dairy products and prudent management of the supply chain were the main reasons for the company's better performance, while the company's gross profit was able to increase as a result of improved margins in Greater China and Southeast Asia, and an increase in the number of food services and consumers.

Raw Milk Purchase Price Increase

Demand for dairy products rebounded strongly as the Chinese market gradually recovered from the outbreak. Fonterra's raw milk purchase price has risen further due to strong buying demand from Chinese buyers, particularly for whole milk powder.

As a result of the strong demand for New Zealand dairy products, Fonterra announced that it has narrowed down its expected purchase price for raw milk from its farms for 2020/2021.

"The price increase from NZ$6.30-7.30 per kilogram of milk solids to NZ$6.70-7.30 means that the mid-point of the purchase price, which is what dairy farmers will be paid, has increased to NZ$7 per kilogram of milk solids." Fonterra CEO Miles Hurrell said, "We are seeing continued demand in China recovering from the impact of the New Crown outbreak, which was well reflected in the recent Global Dairy Trade Trading Platform (GDT) auction. Strong purchasing demand from Chinese buyers, particularly their demand for whole milk powder, has been a key factor in driving up raw milk purchase prices."

Hurrell said the company continues to make progress in executing its strategy and the first quarter of the year has started well, with group adjusted EBITDA reaching NZ$250 million, an increase of NZ$72 million year-on-year.

"Volumes were flat year-on-year, reflecting strong demand for dairy products and the results of our efficient management of the supply chain. Improvements across the business resulted in a 40% increase in our adjusted earnings." Hurrell said a strong rebound in demand for dairy products as the Chinese market continues to recover from the outbreak helped the Greater China foodservice business deliver an outstanding performance in the first quarter, "During the quarter, we expanded our foodservice business to an additional 13 Chinese cities, which brings the total number of cities our business is able to reach to more than 360. "

Despite the strong performance in Asia, Fonterra's performance in the reporting period showed some "regional dissonance" - with growth in Asia offset by lower volumes in Africa and higher costs in Europe.

Continuing losses in China?

Since establishing its first test farm in 2007, Fonterra has now built three dairy farms in China, in Yutian County, Hebei Province, Ying County, Shanxi Province, and a farm in Qihe County, Shandong Province, which it built with Abbott***.

Fonterra has more than 30,000 lactating cows in stock in China*** and produces more than 330 million liters of milk annually. Industry data shows that Fonterra's China farms produce 1% of the total milk supply for the Chinese dairy industry in terms of high quality raw milk each year.

However, Fonterra's poor performance, and was exposed to continuous losses in China farms, coupled with the investment in Bain-marie almost "blood money", which led to Fonterra's management team has been under enormous public pressure.

In order to replenish cash flow and get rid of the burden, in October this year, Fonterra announced that it will be in Shanxi and Hebei Yutian's two pasture groups and its pastures in Hangu at a total price of NZ$555 million (2.5 billion yuan) were sold to the Inner Mongolia Natural Dairy Company Limited, a subsidiary of the Inner Mongolia You Ran Dairy Company Limited (You Ran), and Beijing Sanyuan Venture Capital Company Limited.

The sale, which has been in the works for more than a year, is now finalized, and is subject to antitrust and other regulatory approvals from the Chinese authorities, which are expected to be completed within the current fiscal year.

Selling the business after 13 years of ranching in China is not only a well-considered decision by Fonterra after a review, it is also in line with the needs of its current global strategic planning.

In response, Hurrell said the sale of its own farms in China will help the Co-operative to prioritize areas of the business where it has a competitive advantage. "Over the past 18 months, we have been reviewing every aspect of each of our businesses to ensure that our assets and investments meet the needs of the co-op today. The sale of our own farms is consistent with our decision to focus on New Zealand milk."

Failed milk powder sampling

As we all know, Fonterra started with big pack powder (whole milk powder), and many domestic and foreign milk powder companies are purchasing Fonterra's big pack powder, which is made into infant formula by dry process, and Fonterra is also an important shareholder of Sanlu milk powder.

And Feihe, Banner, Sanyuan, Cradle, Wandashan, Junlebao are directly to the fresh milk as raw materials, the production of infant formulas, commonly known as "fresh milk process". The first thing you need to do is to get your hands on a new pair of shoes, and then you'll be able to get your hands on a new pair of shoes.

But in fact, Fonterra also has its own infant formula brands in China, such as Anmum, however, due to the channel, the marketing of the water on the soil is not convinced, in China's infant formula industry, Fonterra seems to be insignificant.

Recently, the General Administration of Customs released information on food and cosmetics that were not allowed to enter the country in May 2020.

In May 2020, 173 batches of food products were detected by the national Customs in the port supervision link with unqualified safety and hygiene items and not allowed to enter the country.

This time there is imported from New Zealand 1 batch *** 75 kg, Fonterra limited production of whole milk powder, due to sensory inspection failed not allowed to enter.

In the April 2020 unauthorized entry of food and cosmetic information, there is also 1 batch ***25 kg imported from New Zealand, produced by Fonterra FONTERRALIMITED skim milk powder, due to packaging failure was refused entry.

It is worth noting that, in addition to Fonterra, other imported milk powder is also frequently on the quality of the black list, especially the French toxic milk powder, which, to a large extent, heavy setback to the brand image of imported milk powder.

On November 2 this year, the Guangdong Provincial Administration of Market Supervision issued a circular (No. 207 of 2020) on the risk control of 1 batch of unqualified food. The notice said that the State Administration of Market Supervision commissioned Guangzhou Inspection and Certification Group Co., Ltd. to carry out the 2020 General Administration of Food Sampling Program, which sampled the Guangzhou City Panyu District Shawan Chen Dianfei Baby Products Firm sales of Beijing Shida Global Science and Trade Company Limited imported the "Konvicto - Holleray Rui Infant Formula 0-6 months of age, paragraph 1 ", detected prohibited substances.

"Imported milk powder is not equal to the high quality, known as the century-old dairy enterprises of the Conviviality surprisingly detected prohibited substances, coupled with Fonterra's milk powder failure is the best illustration," industry sources told the "five valleys of finance," now the domestic milk powder is in the history of the best level of the mainstream brand is 100% consecutively sampling qualified, and imported milk powder but repeated things. milk powder but repeatedly out of the matter, which will further change the market pattern of China's milk powder.

"Domestic milk powder has been from the source of milk, processing, formula, inspection, implementation of standards and other aspects of the leading world level, all no exaggeration to say that the quality of the current domestic milk powder has been the world's best milk powder, do not dare to say that the first but it must be one of the best." The third International Dairy Federation China National Committee Chairman Song Kungang said.