Danone announces baby-food step in China

Danone announces baby-food step in China

PARIS - French dairy giant Danone took a new step in China on Friday, announcing a tie-up in the booming market for baby milk products.

Six years after a scandal over contaminated baby milk in China pushed consumers towards foreign brands, Danone said it was paying 437 million euros (S$702.6 million) for 25.0 percent of Chinese firm Yashili.

This will be achieved by means of a capital increase by the Chinese company.

Yashili is one of the main producers of baby milk products in China and is majority owned by Chinese group Mengniu, which is already a partner of Danone.

Mengniu will end up owning 51.0 percent of Yashili which employs 5,000 people and has four factories in various regions of the country.

It is also building a factory to make baby milk in New Zealand which is the biggest exporter of milk in the world.

Last year, Danone invested 325 million euros in the Chinese milk sector through the creation of two joint ventures with Mengniu and another Chinese giant in the sector, Cofco.

In the space of a few years, China has become the biggest market in the world for manufactured milk products, accounting in 2012 for about one million tonnes of powder and whey.

At the end of last year, the Chinese government said it intended to increase its purchases of powdered milk this year by 30.0 percent.

The prospects of this market for Danone are particularly significant since sales of milk products are falling in Europe where economies are weak.

But last year Danone suffered a setback, having to suspend sales in China of some of its products for babies owing to what turned out to be a false health scare by a supplier in New Zealand, Fonterra.

The incident undermined Danone's results for a year costing it about 300 million euros in operating profit and 370 million euros in sales.

Its baby food division is only now recovering, raising sales in the third quarter.

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