Danone strikes deals to meet China's taste for yogurt

French food industry group Danone is ramping up its presence in the growing Chinese market for dairy products with two deals on Monday to tap sales of yogurt and health foods, the firm said on Monday. Danone said it was investing about 325 million euros ($418 million) to strengthen its place in the potentially vast Chinese market, via two joint ventures in distribution and production. The intention is to build on a joint market share of about one fifth of the Chinese market for dairy products. The two ventures are with arms of the Chinese company COFCO which says it is "the largest supplier of diversified products and services in the agricultural products and food industry in China". A joint statement said that the strategy targeted "the production and sales of chilled yogurt products in China, combining their respective assets in this category." The statement said: "Danon's BIO (Activia) brand will put the new fresh dairy business in a solid position to build its strong leadership in the active health sector." Danone chief executive Frank Riboud said that the deals "will create the winning combination to unlock the potential of the fresh dairy products category in China. With the support of COFCO's expertise in the Chinese food industry "our brands will benefit from significantly wider reach to the largest number of Chinese consumers," he said. COFCO said that it was "devoted to utilising renewable natural resources to provide healthy and nutritious food." Under the agreements, Danone is to create a venture with COFCO opening the way for a strategic partnership with Mengniu, described as a leading Chinese dairy product company. Initially, Danone will hold 4.0 percent of Mengniu with the intention of increasing this stake in line with future market conditions, the French firm said. The second venture will be linked directly to operating activities. The venture will group assets from the two companies and achieve total sales on the basis of figures for 2012 of 500 million euros. Danone said this activity would account for an estimated 21.0 percent of the Chinese market and would comprise 13 factories in China. It would benefit from the two brands, Danone and Mengniu. The second venture would also develop synergies by using expertise from Danone in terms of quality and innovation and would benefit from the market leadership and "vast" distribution network operated by Mengniu which would hold 80.0 percent of the new business. Danone is a world leader in the sectors of dairy and health foods, baby food and medical nutrition and the supply of bottled water, the statement said. The company has more than 190 production facilities around the world and employs 102,000 people. Last year it achieved sales of more than 20 billion euros, more than half of which were made in emerging economies. The chairman of COFCO, Frank Ning, said that as the biggest Chinese state-owned company in the food sector, "COFCO has the responsibility to further develop dairy products in China." Mengniu already has an agreement on international cooperation with Aria Foods, a dairy group owned by 12,000 farmers in Denmark, Sweden, Britain, Germany, Belgium and Luxembourg. The deals are subject to regulatory approvals. The agreement is not affected by the deal with Danone, the statement said. Aria Foods has annual sales of 10.0 billion euros and is the biggest manufacturer in the world or organic products, the statement noted.