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Business deals

New Zealand's Fonterra sells money-losing Chinese farms for $370m

Group entered the country in 2008, but cost of purchasing feed was a burden

Cows feed at a farm managed by New Zealand dairy exporter Fonterra near the Chinese city of Tangshan, east of Beijing.   © Reuters

SYDNEY -- New Zealand's top dairy producer, Fonterra Co-operative Group, said Monday it agreed to sell off farms in China for a total of 555 million New Zealand dollars ($368 million).

In two separate deals, Fonterra will transfer seven farms altogether to an affiliate of Inner Mongolia Yili Industrial Group and to Beijing Sanyuan Venture Capital. The transactions are expected to close by the end of July, pending approval by Chinese authorities.

For months, Fonterra has considered a sale of its Chinese farms, which have been losing money. The company looks to divest its two remaining Chinese farms, operated jointly with a U.S. partner.

Fonterra has operated dairy farms in China's Hebei Province since 2008, and in Shanxi Province since 2015. But unlike in New Zealand where grazing is the norm, dairy farmers in China must purchase feed.

The extra costs contributed to the persistent red ink. During the fiscal year ended in July 2019, the Chinese farms recorded over NZ$200 million in impairment losses.

Fonterra CEO Miles Hurrell said in Monday's statement that the company has reviewed its portfolio during the past 18 months.

"Selling the farms is in line with our decision to focus on our New Zealand farmers' milk," Hurrell said.

Fonterra began in 2001 as a merger of dairy cooperatives. The group actively expanded its overseas footprint. But that activity yielded underperforming operations in China and elsewhere, necessitating a radical shift in strategy under Hurrell, who became the permanent CEO in March 2019.

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