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Fonterra to Sell Its First China Baby Formula in Expansion Drive

Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, will introduce its first baby milk formula across China as it expands and seeks to regain consumer confidence in the country after a contamination scare.

The company, which started selling its Anmum-brand infant milk powder in the Southern Chinese city of Guangzhou as part of a pilot project, will start sales nationwide within the next year, Kelvin Wickham, managing director of Fonterra’s China and India units, said in an interview.

“High competition and lots of regulations to ensure that products are high quality and safe means it’s not an easy market,” Shanghai-based Wickham said. “If you want to be a global dairy player, you have to be in China. The Chinese consumers are getting stronger and stronger, and they will define the standards for the world and expectations.”

Fonterra, based at Auckland, New Zealand, is seeking to enter a baby food market currently dominated by Mead Johnson Nutrition Co. (MJN), Hangzhou Beingmate Group Co. and Danone, and where regulation is being tightened. Meiji Co., the Japanese confectioner and dairy products company, said last week it would pull out of the infant nutrition market in the world’s second-largest economy due to rising costs and intensified competition.

China is New Zealand’s biggest dairy customer, buying NZ$3 billion ($2.5 billion) worth of dairy products in the year through June.

The company is considering Shanghai and Chengdu among the next cities for a roll out of the formula and will expand their presence to 70 Chinese cities in the next three years, the executive said on Oct. 25.

Boosting Workforce

Fonterra will hire as many as 500 new employees, boosting the workforce by about 50 percent in the next year, as it seeks to expand its consumer and farm businesses on the mainland, Wickham said.

The company two months ago introduced its Anchor-brand ultra-heat treated milk into the Chinese consumer market and plans more product introductions under the brand, Wickham said.

Fonterra has faced some roadblocks in China in recent months. The company said Aug. 3 that a dirty pipe at a processing plant may have tainted a whey protein used in baby formula with a botulism-causing bacteria. While government testing subsequently found the contamination didn’t pose a food safety risk, Fonterra undertook a review of its handling of the scare.

“There are still consumers who are confused and uncertain, and we still have to do more to explain to consumers that it is a false alarm,” said Wickham, who added that Fonterra’s Chinese business was impacted by the botulism scare.

Chinese authorities also fined Fonterra about 4.5 million yuan ($740,000) in August for violating anti-monopoly rules. The company cut prices for its Anmum supplements for pregnant women by 9 percent in July after the National Development and Reform Commission, China’s top economic planning agency, began an investigation that month into the pricing of their products.

Mead Johnson is ranked first in China’s milk-formula market with a 14 percent share last year and Hangzhou Beingmate Group was No. 2 with 10 percent, according to researcher Euromonitor International. Danone was third with a 9.2 percent market share.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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