Chinese dairy products maker Shijiazhuang Sanlu Group Co Ltd is in the final phase of negotiations with Fonterra Cooperative Group Ltd, the world's ninth-largest dairy producer, about a potential joint venture.

"The negotiation between us is still going on, and the deal is likely to be inked later this month," said an anonymous official from the Chinese firm.

But she refused to give further details.

It was reported earlier that the New Zealand-based dairy giant is going to purchase a 39 percent stake in Sanlu and the acquisition will be achieved within three months.

After the purchase, Fonterra will become the second-largest shareholder of Hebei Province-based Sanlu after the Shijiazhuang Dairy Group.

"The likely cooperation between the two companies will achieve a win-win situation for them," said Chen Yu, an industry expert from Beijing.

The foreign dairy maker is attracted by the rapid-growing diary market in the country, he told China Daily.

The country's production of diary products totaled 16.5 million tons last year, an increase of 17.86 percent over 2002.

And the figure is likely to grow by another 20 percent this year, Chen predicted.

"Our efforts to secure a stake in Sanlu is part of a long-term investment initiative," said Fonterra's Chief Executive Officer Andrew Ferrier in a statement.

"We have a good track record in the (Chinese) market, and we have achieved good sales," Ferrier said.

The company entered the Chinese market six years ago and sells Anmum milk power, the best-selling brand in the Chinese market in the product category for pregnant or breast feeding mothers.

"Our experience gives us confidence we can achieve long-term growth through the Sanlu investment, if we are successful in our negotiations," he said.

The company's goal was to use local knowledge and experience in the Chinese market.

Meanwhile, the foreign company's product research and development ability as well as its production and management capability is valuable for Sanlu, industry insiders said.

And the capital investment by the foreign firm will also help Sanlu's growth in the domestic market.

(China Daily April 2, 2004)