Arla to make big investment in China

China is the fastest growing dairy market in the world and has over 1.3 billion consumers. Now Arla Foods is looking to strengthen its presence on the Chinese market by signing agreements with China’s leading dairy company China Mengniu Dairy Company Ltd. and with the leading food and beverage company in China, COFCO Corporation.

Today Arla will confirm agreements which will boost exports to China:

• Arla confirms an agreement which is set to make Arla an indirect shareholder of China Mengniu Dairy Company Limited along with Mengniu’s single largest shareholder, COFCO Corporation, China’s leading food and beversage company
• Arla confirms an agreement with Mengniu to establish the China-Denmark Milk Technology and Cooperation Centre, which is to provide expertise on milk quality, traceability and controlled milk production on farms. This agreement is a framework agreement supported by China’s Ministry of Agriculture and Denmark’s Ministry of Food, Agriculture and Fisheries.
• Arla confirms an agreement with Mengniu which involves expanding the Arla brand to new product categories, giving Chinese consumers access to more Arla’s products

These agreements are expected to increase Arla’s total turnover in China five-fold, by 2016 (last year, Arla’s total turnover in China was approximately 700 million DKK).

Since 2005 Arla has primarily sold powdered milk products on the Chinese market, through a joint venture with Mengniu. Now Arla has decided with its partner to further develop our dairy business together and extend the category from milk powder to a full range of dairy products.

The current joint venture will become part of Mengniu, of which Arla is now to become an indirect shareholder along with COFCO.

Important to be in China

Consumption of dairy products in China is growing faster than the nation’s rapidly increasing dairy production. With a growth rate of approximately 10 per cent the Chinese market is expected to surpass the United States as the world’s biggest market for dairy products in 2020.

“With the growth rates that are driving the country forwards, now and in the years to come, it is crucial for Arla to gain a solid foothold in the Chinese market. 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,” says Arla Foods’ CEO, Peder Tuborgh.

“These agreements will increase our export to China significantly over the coming years. It will contribute positively 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 is lower historically.”

Breakthrough for the Arla brand in China

Arla’s agreements with COFCO and Mengniu will mean that a series of new Arla products are to be introduced on the Chinese market through Mengniu’s sales channels as one of the many high-quality brands in Mengniu’s product range.

“Arla’s products will reach more Chinese consumers to a degree I would consider a breakthrough for the Arla brand in China. It will cement the Arla brand as a trademark for international quality, not just within powdered milk but also in other categories,” says Peder Tuborgh.

“To further develop our cooperation, Arla will support our partner in building an international standard in technology, innovation and quality systems,” says Peder Tuborgh.

China is considered 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, which is also the aim with today’s agreements.

“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 in many years to come. Our ability to develop our business both home and abroad will be the key to securing a long-term profitability for our cooperative owners,” says Peder Tuborgh.

For Arla, the investment in these agreements amount to 1.7 billion Danish kroner, by which Arla will effectively hold approximately six per cent interest in Mengniu. Arla may nominate one director to the board of Mengniu.

Parts of the agreements will be signed this afternoon at 2 PM in Copenhagen.

Facts:

• China Mengniu Dairy Company Limited and its subsidiaries manufacture and distribute quality dairy products in China. It is one of the leading dairy product manufacturers in China, with MENGNIU as the core brand. The Group boasts a diverse product range including liquid milk products, (such as UHT milk, milk beverages and yogurt), ice cream, and other dairy products (such as milk powder and cheese).
• Mengniu were the largest dairy company in China in 2011 in terms of sales volume and sales, and one of the top 20 global dairy enterprises as ranked by Rabobank. As of December 2011, the company’s annual production was 7.05 million tons. In 2011 the company reached a turnover of 37,39 billion RMB. The company is listed on the Hong Kong Stock Exchange.
• COFCO Corporation is a leading grain, oil and food import and export group and the largest food and beverage company in China. The company is founded in 1949 and has featured on the Fortune 500 list since 1994.
• In 2011 COFCO’s total assets amounted to 254.5 billion RMB, with net assets of 83.8 billion RMB.