04/10/10 By ANDREA FOX - BusinessDay

Dairy conglomerate Fonterra is in talks with big Indian farmer cooperative Iffco on setting up a super-size dairy farm in the world's biggest and fastest growing dairy market.

While newspaper reports out of India said a partnership deal had been reached giving Iffco a 45 per cent stake and Fonterra 30 per cent in a 40,000 cow venture, Fonterra global trade managing director Kelvin Wickham said no formal agreement has been reached and the parties are in "exploratory talks".

A report in India's Economic Times says 3000 cows will be imported from New Zealand and Australia with India supplying 10,000 cows annually for the next three years.

The report says the partnership will produce top quality milk for premium customers and that India is considering relaxing a 30-year-old regulation on cow imports for commercial use that would otherwise hamper the venture.

But Fonterra is downplaying the report. Wickham said Fonterra has "an interest" in the Indian dairy market. But as in China, "the starting point for any dairy business in India will be securing a high quality, traceable milk supply," he said.

The Economic Times said the balance of shares in the venture would be held by India's Global Dairy Health.

The report said the primary objective of the dairy farm at Nellore was import substitution and to develop India as a hub for milk exports to southeast and west Asia.

Fonterra last year exited an Indian processing joint venture, Britannia New Zealand Foods, saying it no longer fitted the company's strategic priorities.

The New Zealand farmer-owned cooperative sold its stake to partner Britannia Ltd, saying although there was a lot of growth in India, the local milk supply was fragmented and required significant development and investment to deliver an efficient supply chain for high quality fresh milk.