Huishan Dairy and FrieslandCampina enter into first Chinese infant milk formula joint venture

8 October 2014

China Huishan Dairy Holdings Company Limited (‘Huishan Dairy’) and Royal Friesland Campina N.V. (FrieslandCampina) have entered into a joint venture with the purpose of operating a fully integrated infant milk formula supply chain in the People’s Republic of China. The agreement, which follows talks held in May, was signed by the companies’ two CEOs: Yang Kai of Huishan Dairy and Cees ‘t Hart of FrieslandCampina. This joint venture is the first between a Chinese and a foreign dairy company that will locally manufacture, market and distribute infant milk formula. Both companies will own 50 percent of the shares in the joint venture while continuing to operate their existing infant formula businesses separately. As such, Huishan will carry on marketing its own brands and FrieslandCampina’s Friso® brand will continue to be exclusively produced in the Netherlands and imported and marketed by FrieslandCampina in China.

The two companies intend for the joint venture to introduce a new infant milk formula brand to the Chinese market. This brand will offer infant nutrition of the highest quality, sourced from a fully integrated local supply chain and combining Huishan’s existing top quality local supply chain with FrieslandCampina’s international expertise. To this end, the joint venture will own Huishan Dairy’s modern, state-of-the-art Xiushui dairy plant near Shenyang, which Huishan Dairy will supply with raw milk from its farms.

Meanwhile, FrieslandCampina will provide access to its existing sales and distribution network in infant milk formula in China, together with its knowledge and expertise on how to operate an infant milk formula supply chain and its infant formula branding and marketing capabilities. This combination will ensure that the joint venture has full control over the sourcing, manufacturing, marketing and distribution of its infant milk formula.

The joint venture between Huishan Dairy and FrieslandCampina fits well with the Chinese government’s latest food safety regulations and policy. These aim to ensure the best possible quality control of infant milk formula manufacturing across the full supply chain, which has been identified as a top priority for consumer health.

The joint venture also follows on the state visit of the President of the People’s Republic of China Mr. Xi Jinping to the Netherlands earlier this year, during which he and Dutch Prime Minister Mark Rutte agreed to intensify cooperation in the area of dairy.

Yang Kai, CEO Huishan Dairy: “The Chinese infant milk formula market is an attractive and fast-growing market. Both our companies want to grow in this market. The joint venture between Huishan and FrieslandCampina will locally source and produce infant milk formula for the Chinese market and have full control over the entire supply chain. The joint venture will ramp up its infant milk formula production, taking advantage of FrieslandCampina’s existing sales and distribution network in China. This co-operation will combine best of two worlds: Huishan Dairy’s top quality raw milk combined with world class Dutch dairy technology and heritage. Our infant milk formula will be made with the greatest possible care and expertise, based on specific Chinese nutrition needs, tailor-made to nourish Chinese babies.”

Cees ‘t Hart, CEO Royal FrieslandCampina: “I am proud that FrieslandCampina will be part of the first joint venture between a Chinese and a foreign dairy company that will locally source, manufacture, market and distribute infant milk formula. This joint venture together with Huishan Dairy confirms FrieslandCampina’s continued commitment to its customers and consumers in the People’s Republic of China. It follows the establishment of the China-based Sino-Dutch Dairy Development Centre (SDDDC), which FrieslandCampina helped found nearly one year ago. Huishan Dairy’s solid local supply chain combined with our more than 140-year history of developing state-of-the-art technology and expertise in the Dutch dairy industry will enable the joint venture to build a strong long-term relationship with its Chinese consumers.”

FrieslandCampina will invest an amount in the order of RMB 700 million (EUR 90 million) for a 50 percent stake in the Xiushui dairy plant and will purchase USD 30 million (EUR 24 million) worth of Huishan-shares on the Hong Kong Stock Exchange.

The transaction is subject to approval by local and national government authorities. The formal agreements will be subject to conditions precedent, and other conditions commonly governing this type of transaction.

Cees ‘t Hart, CEO FrieslandCampina and Yang Kai, CEO Huishan (right)