NZ approves China-backed plans to build 2 infant formula plants

WELLINGTON (REUTERS) - New Zealand has given two big Chinese dairy firms the green-light to build infant milk formula plants in the country, paving the way for overseas firms to expand into the world's largest dairy exporting country.

The Overseas Investment Office (OIO) said on Wednesday that it had approved separate applications from Yashili New Zealand Dairy Co and Inner Mongolia Yili Industrial Group to buy land to build the two formula processing plants, valued at more than NZ$200 million (S$209 million) each.

The Chinese firms are keen to tap into New Zealand's massive milk supply to process high-margin infant formula which they plan to ship back to China, where demand for infant formula has been booming in the past decade as China's middle class expands.

This has led to a surge in demand for foreign formula brands, as Chinese consumers remain suspicious of domestic milk formulas after a 2008 melamine tainting incident killed at least six children.

The OIO said it had approved an application from Inner Mongolia Yili Industrial Group to acquire land in the South Island as part of its plan to acquire the collapsed New Zealand firm Oceania Dairy Ltd, in a deal worth around NZ$214 million.

It added that it had given the go-ahead to Yashili to buy land in the North Island's Waikato dairy country for its NZ$212 million plan to build its own plant.

Yashili International Holdings, the parent of Yashili New Zealand Dairy, had announced the approval on Tuesday, and now awaits approval for land use and resources. It expects to be processing formula later in 2014.

Yashili International Holdings already sources all of the milk powder used in its formulas from New Zealand, which it ships to China to be processed.

Both firms, which are among China's top domestic formula producers, have cited New Zealand's relatively cheap milk supply as a big incentive for their investment plans, while low tariffs under a free trade agreement were also considered to be a draw.

New Zealand's Fonterra, the world's largest dairy exporter which processes formula for many global brands, including Chinese ones, said last week that it is planning to sell its own branded milk formula in China by mid-year.

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