The world's biggest dairy exporter is planning on a partnership with one of China's biggest infant food manufacturers in a bid to grab a bigger slice of the burgeoning baby formula market.
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Fonterra, whose brands include Bega, Western Star, Perfect Italiano and Mainland, on Wednesday announced the "global partnership" with Beingmate, which already controls 10 per cent of the market.
The deal will result in the farmer-owned New Zealand dairy co-operative buying a 20 per cent stake in the Chinese publicly listed company.
Under the partnership, both companies would establish a joint venture to purchase Fonterra's paediatrics facility at Darnum, in Victoria. Fonterra would have a 49 per cent stake and control production.
It would also invest $NZ555 million on updating its dairy processing equipment to increase milk powder processing capacity in New Zealand. Beingmate would distribute Fonterra's Anmum baby formula products in China.
"This partnership, if it goes ahead, will have far-reaching and beneficial impacts globally, in China and here in Australia," Fonterra said.
Judith Swales, managing director of Fonterra Australia, said the proposed partnership would be a "game changer" for the dairy industry in Australia and create a worldwide direct supply chain to China.
The Darnum facility produces 50,000 tons of infant formula annually and with a "small investment" could increase that to 100,000 tons, Ms Swales said.
She said it was too early to speculate on how many jobs would be created by the increase in production.
The baby formula market in China has boomed following the deadly milk contamination in 2008 that killed six babies and put another 54,000 in hospital. The market is worth $18 billion but is expected to jump to $33 billion by 2017.
The Chinese government brought in new laws last year to tighten safety controls, including making it compulsory for companies to control their supply chain.
Only four Australian companies have been able to crack the tough import regulations. Just a few years ago more than 800 brands were available; that has been whittled down to about 100.
Fonterra suffered two contamination scares from whey protein produced in New Zealand in 2012 and 2013, the latter resulting in a recall.
A Fonterra spokeswoman said it was not concerned about its brand being damaged by the scares and emphasised that the new partnership would use Australian milk, which had an excellent safety reputation.
Regulatory approval in Australia and China is needed before the partnership can go ahead. Ms Swales expects the process to take up to eight months.
