Yili to buy Oceania Dairy

Chinese company Yili Industrial Group plans to spend $214 million building an infant formula plant in South Canterbury in a deal that will see it take over Oceania Dairy Group.

Yili will acquire Oceania to access its land resource consents to build a plant over 38 hectares in South Canterbury, according to a notice on the Shanghai Stock Exchange on Dec. 18. The Chinese firm said it’s attracted by New Zealand’s relatively cheap raw milk and the prospect of the free-trade agreement with China completely removing Chinese import tariffs by 2020.

The plant is scheduled to be completed by June 2014 operating at 60 percent capacity, with annual full capacity of 47,000 tonnes expected in the 2016/17 year.

The deal is subject to Overseas Investment Office and Chinese government approval.

This will increase competition in the milk market which ought to help with OIO approval.

It will also attract the xenophobes who will complain about profits going overseas.

But the company plans to spend $214 building the plant which is a significant investment that will provide jobs.

It will be buying milk from local farmers and employing locals to process it. It will also be buying other local goods and services, paying rates and tax.

All of that will be good for the local and national economy.

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21 Responses to Yili to buy Oceania Dairy

  1. robertguyton says:

    “It will also attract the xenophobes who will complain about profits going overseas.”

    Aren’t they correct though?

  2. homepaddock says:

    No, we need inward investment that provides jobs here. The profit is only what’s left over after they’ve spent a lot on goods, services and tax.

  3. robertguyton says:

    So, you’ve figures that show that Yili’s take-home profits are balanced favourably to NZ by their investments here?
    Let’s see ‘em.

  4. homepaddock says:

    Yili hasn’t even bought the company yet. If it gets OIO approval and completes the deal it will be spending a lot of money before it makes any profit at all.

  5. JC says:

    To repeat myself..

    Any profit made in NZ is made in NZ dollars. For an overseas company to take the “profit” out of NZ it must sell its NZ dollar profits to a buyer of NZ dollars who can only spend the money in NZ.. thus the profit cannot be lost to NZ.

    JC

  6. robertguyton says:

    Yili won’t profit from its business then?
    Fools!
    That NZ-produced milk it sells overseas couldn’t have been sold by New Zealanders, bringing all that profit back to NZ?
    It’s a real puzzle.

  7. TraceyS says:

    What is the problem with an overseas company making profits from activities in NZ? A profit, crudely, is income minus expenditure. The company will export most of the product produced here. Therefore much of the income side comes from overseas money in the first place. Once expenditure is accounted for, the profit remains. Some of the income is expended here in NZ; some might be spent on inputs from overseas; and what remains (as profit after tax) goes back overseas, in this case most likely to the place from whence it came.

    Picture things in reverse. A New Zealand company builds a factory in another country because that’s where the raw materials are to make a product that our people need or want. The company then sells that product, predominantly, back to it’s home market. Would anyone be arguing that profits belonging to the NZ company should not come home, but rather belong to the country where the production activity took place? What if that country was China?

    It’s hypothetical, I know. But according to Robert no-one should have any difficulty in providing answers to such questions.

  8. robertguyton says:

    “What is the problem with an overseas company making profits from activities in NZ?”

    Let’s see… a powerful, wealthy oil company uses its leverage to secure rights to a large NZ oil field. After paying a minuscule royalty to the Government, extracts vast amounts of oil and sells it on the global market. New Zealand loses its oil resource in return for a pittance royalty, a resource that is non-renewable and better left ‘in the bank’ for the future.
    You don’t see that as a ‘problem’, Tracey?
    That’s not even to mention the risk NZ faces, where that oil field is deepwater. Nor will I bring up the issue of global warming that will be added-to, inevitably, by the extraction of oil from where it’s safely sequestered now, etc, etc…

  9. TraceyS says:

    All those problems seem to be potentially solvable. Just rephrase without the emotional drivel eg. “powerful”, “loses” “minuscule”, “vast”, “pittance”…(even just a little less would help). Then what you are saying takes on a different light.

    And you have avoided my question. Would you have an issue if the Yili situation was reversed? Or would making some cash out of China have you rubbing your hands together?

  10. JC says:

    “Yili won’t profit from its business then?
    Fools!”

    I’ll try again..

    Yili makes a profit and it wants to send it to China. The profit was made in NZ dollars which are not legal currency in China so it has to sell its NZ dollars in exchange for Yuan. The buyer of the NZ dollars can only cash these in NZ because only in NZ are NZ dollars legal tender.

    So every profit leaving NZ must be converted from NZ dollars to the currency of the home country and someone *must buy* those NZ dollars and use them in NZ. For every dollar of profit sent out of the country it must first be purchased by a buyer who can only use it in NZ , ergo, the “profit” does not leave the country.. it is recycled within the country.

    JC

  11. robertguyton says:

    “Yili makes a profit and it wants to send it to China.”

    Yili can’t make its profit in China?

    Good Lord! I am a babe in the economic woods.
    Best I fold now and stop making a fool of myself.

  12. robertguyton says:

    “All those problems seem to be potentially solvable.”

    Excellent! Please tell me, Tracey, your solution to greenhouse gases that result from the burning of oil.
    I’m all ears.

  13. TraceyS says:

    I’ll have to go put some water on my log burner first. Just realised that it’s producing greenhouse gasses and I don’t wish to appear a hypocrite. And then I’ll have to cancel tomorrow’s trip to town for a birthday celebration. Come to think of it, there may not be time to answer your question at all as I totally rearrange my life without fossil fuel. Anyone know where I can get a couple of Merino sheep? They won’t do well here, but what other fibre will I have for my clothing since cotton and synthetics will certainly be out of the question?

    Seriously though! Does every conversation need to be reduced to an argument about global warming? Ele’s post did not start out as that.

    But just out of interest, what exactly did you have in mind for all that kiwi oil that you said is “…better left ‘in the bank’ for the future”? After all if it’s in the bank for the future you obviously intend burning it at some point. Hmmm…

  14. robertguyton says:

    Presently, oil cannot be burned without producing greenhouse gases, which in turn threaten the future of food production on the planet. Leaving it in the ground will contribute to having a viable future. The reason why climate change appears in these discussions, is that it’s the elephant in the room. Some can blind themselves to its presence. Not me. Perhaps sometime in the future there will be ways to utilize oil that don’t result in worsening the climate situation, then I’d have fewer objections to New Zealand extracting ours. That’s not possible now, so I object.
    Your facetious scenario; “I’ll have to put some water on my log burner..” is…facetious.

  15. robertguyton says:

    Oh, and you didn’t provide a solution to greenhouse gas production from oil burning, despite your assurance that there is one.

  16. JC says:

    Good idea.

    JC

  17. Profit forecast from my story posted December 19….

    http://newzealandinc.com/chinas-largest-dairy-player-invests-214m-in-new-nz-infant-formula-plant/

    “The company expects the project’s internal rate of return will be 9.77 per cent and annual sales revenue will be RMB 1307 billion ($248.73 million) giving an average annual profit of of RMB 113 million ($21.59 million).”

  18. TraceyS says:

    “Perhaps sometime in the future there will be ways to utilize oil that don’t result in worsening the climate situation”. There are uses such as in skin and medicinal products. But if you’re talking about burning oil have you not heard of the second law of thermodynamics?

    The reason why climate change appears in this discussion is because you brought it up in order to hijack the topic. There was no need to do that because the topic of climate change already gets a very good airing on this blog.

    I wish you had stuck with your assertion “Nor will I bring up the issue of global warming….” (@robertguyton on December 30, 2012 at 3:22 pm). I am not blind to the issues, but neither blindsided by your diversion.

    Must go now. Have knitting to do….

  19. robertguyton says:

    The oil and coal industry reps do the same as you, whenever the subject of global warming is brought up – obfuscate, dodge, run off because they have knitting that must be done…

    Curious.

  20. CJMcKenzie says:

    With transfer pricing it’s almost guaranteed that the enterprise will run at a ‘loss’ within NZ.. not to mention the rort of getting govt-guaranteed milk from Fonterra for three years. Ele there is a lot to be said for ‘healthy competition’ but the long term implications of fragmenting the industry need deeper consideration than you have given them so far.
    Glad to have rediscovered your blog! Hope you and family are very well.

  21. homepaddock says:

    If Fonterra lost its dominence we could end up like Australia where the supermarkets dominate the market to the farmers’ detriment. But while Fonterra has 90% of the market, that’s very unlikely to happen. However, Yili won’t pay any more than they have to so they will probably link their price to Fonterra’s.

    Good to find your blog, all well here, thanks.

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