China is a very important market for Fonterra. In 2011, China ranked as the number one market for Fonterra‘s ingredients (Fonterra, 2011). And while Fonterra‘s consumer brands are relatively new to the China market, they have been growing quickly (Fonterra, 2011). Fonterra recognised quite early that China is a market in massive transition, with a rapidly emerging middle class and expanding appetite for fresh dairy. However, local milk supply in China was not growing as fast as the market, the industry is fragmented, and dairy supply chain has had serious quality issues to confront over recent years (Fonterra, 2011). This situation creates unique opportunities for Fonterra and it is the reason behind Fonterra establishing its own dairy farms and milk supply chain in China.
In 2008 Fonterra established its first dairy farm in China at the Hangu County of Hebei province near the city of Tangshan (Oliver, 2009). With 3000 Friesian heifers imported from New Zealand, the 35ha farm was set up as a pilot project to build a reliable source of quality milk to supply its local Chinese partner (Oliver, 2009). Dairying knowledge from New Zealand with feed lot expertise from USA was combined and applied on this Farm.
The farm is a feedlot system with the animals housed in barns and feed bought from local farmers. About 50,000 tonnes of corn silage was bought from neighbouring farmers during the first year of operation (Oliver, 2009). Meadow hay, lucerne, brewer's grain, whole cottonseed, soybean meal, soybean hulls, ground corn and protein concentrates make up the rest of the feed ration. Different formulations are fed to the milking herd, dry stock and young stock. Three Sortie type Total Mixed Ration (TMR) feed wagons are used to mix and
Newly calved and high-producing cows are milked three times a day with the others milked twice in two low-maintenance high throughput swing over type herring bone milking parlours. The average production per cow target is 25kg/day. Milk is sold on a volume basis with a base price agreed with the customer; this price can fluctuate based on the market price as well as incentives for additional protein and fat. There are also additional incentives or penalties based on other factors such as bacterial counts and somatic cell counts (Oliver, 2009).
Temperatures can fall well below freezing in the winter and rise into the mid 30‘s in the summer (Oliver, 2009). Heat stress can be highly detrimental to milk production so good ventilation and a system of fans and sprinklers are used in the barns. Also since the farm is situated on a coastal plain with the water table about 60cm below ground, surface flooding can be an issue during summer downpours. After the first summer of operation a few design changes have been implemented.
The farm employs 100 full-time workers including office staff; and temporary workers are also employed when needed (Oliver, 2009). Farm workers are divided into teams for milking, feeding and cleaning. Workers and management are all housed on the farm while the senior management's families live in Beijing. A large wall surrounds the farm and access is limited. This is a biosecurity measure as well as to help prevent petty thieving (Oliver, 2009).
However, in China things don't always go according to plan and setting up this farm was no exception (Oliver, 2009). Construction of the farm was managed by Beca International from NZ and incorporated design features from around the world. Site selection took longer than expected and involved navigating through a lot of bureaucratic red tape that delayed the start of construction. During the winter there were delays in concrete being poured, including heavy fog preventing trucks from coming to the site. Over the Chinese New Year period most construction projects come to a standstill for two weeks as labourers go home to be with their families. The cows arrived in Chinese quarantine in October and farm construction was originally expected to be completed and milking started by December 20, 2007. However it was only completed in May 2008, meaning that the cows had to be housed in temporary facilities where they
were calved and then milked. Some were dried off early. These less than optimal conditions have meant that first year production has been lower than budgeted (Oliver, 2009).
When asked what would have been done differently, a Fonterra executive based in China told the author …―there are a number of things that we would do differently at the farm level including design changes and ways of saving money while retaining quality. Also, resourcing earlier and training earlier; as well as having legal and regulatory requirements around land absolutely locked down at an early stage‖ (Oliver, 2009)
Following the success of its China farm, in 2011, Fonterra confirmed plans for establishing its second and third farms in China and outlined a vision to develop more farms to play a bigger role in the development of the Chinese dairy industry (Fonterra, 2011). The farms will give Fonterra the ability to source high quality local milk both for its customers and potentially over time for its own branded products (Fonterra, 2011).