Arla Foods has strengthened its ties with Chinese dairy group Mengniu in a bid to boost its sales in the country.
The Danish-Swedish dairy co-operative today (15 June) announced a deal that will see it become a shareholder in Mengniu, with which it has operated a venture in China since 2005.
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Arla described the transaction as a “big investment” in China and one that it hopes will multiply its sales in the country by five times by 2016. Last year, it generated revenue of around DKK700m (US$118.7m) in China.
The venture between Mengniu and Arla had primarily sold powdered milk in China. The two companies have now decided to sell a “full range of dairy products” in the market.
The venture will become part of Mengniu, meaning Arla will effectively own a 6% stake in China’s largest dairy processor.
China’s state-run COFCO, the country’s largest food processor, is the largest shareholder in Mengniu, with a 28% stake and was party to the deal with Arla.
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By GlobalData“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,” Arla CEO Peder Tuborgh said.
“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.”
The Arla chief also outlined the benefits the deal would have for the co-operative’s farmer-owners.
“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,” he said. “These agreements will increase our export to China significantly over the coming years. It will contribute positively to our co-operative 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.”
Arla and Mengniu will set up a technological centre that will look to “provide expertise” on farm production, milk quality and traceability.
