Arla lifts drive to tap booming China milk imports

Arla Foods unveiled a $400m investment plan, primarily to boost growth in exports to emerging markets, as hopes rose for further gains in the Chinese buying spree that is "supporting the entire dairy complex".

Arla Foods, the Danish-based co-operative, announced that it would invest DKK2.2bn in 10 of its dairy sites this year.

While the vast majority of the spending is on plants in Western countries, with more than half to be spent in Denmark itself, the focus of the investment "will be on production of profitable export products for the company's strategic growth markets outside the EU".

Spending specifically on boosting dairy products for these markets Africa, China, the Middle East and Russia will jump 61% to DKK750m ($136m).

'Rapidly-growing demand'

"This year we are increasing our investments to dairy sites that contribute to our export out of Europe," Povl Krogsgaard, vice-chief executive of Arla Foods, said.

"Our sales on the growth markets outside the EU are growing at a fast pace, and we must prepare ourselves to meet the rapidly-growing demand in years to come."

The comments come amid expectations that China - where Arla Foods has a tie-up with China Mengniu Dairy, the country's top dairy company will extend at least for this year the strong dairy imports which marked 2013, driving prices of many products to record levels.

"China is buying at unprecedented levels, supporting the entire dairy complex," industry group US Dairy Export Council said.

'Staggering growth'

Indeed, China's imports soared 34% last year, including a "staggering" 74% growth to 550,404 tonnes of milk powder, whey, cheese and butterfat purchases in the last four months, the council said.

That is "more than the purchases of Russia, Mexico, Japan and Algeria put together".

In fact, China's "appetite, and willingness to pay historically high prices, has squeezed out other buyers in recent months".

Production setbacks

The strong imports reflect, besides growing domestic wealth, a poor performance by China's own milk producers, undermined by poor weather, foot-and-mouth disease and the impact of an industry restricting which is driving out smaller operations in favour of dairy giants.

While the US Department of Agriculture, whose data set world benchmarks, believes China's cow's milk production rose 5.8% to 34.5m tonnes last year, others believe output was far lower.

The council said that China's milk output was "estimated very loosely at 6% below 2012 output.

"Even if weather improves in 2014, some of the structural issues [which depressed production last year] will take longer to settle," it said.

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