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Abbott Labs, Fonterra Collaborate for Dairy Farm Hub in China

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Abbott Laboratories (ABT - Free Report) announced that it has signed an agreement with New Zealand-based Fonterra Co-operative Group Ltd. for the development of a proposed dairy farm hub in China. The alliance, pending regulatory approval in China, will leverage Fonterra's expertise in dairy nutrition and farming in China.

Upon approval, Abbott Labs and Fonterra will form a joint venture to invest a combined $300 million into the farm hub. The hub will contain up to five dairy farms and more than 16,000 dairy milking cattle in production. Abbott Labs expects the development of the first farm to be complete and operational in the first half of 2017 while the remaining farms will commence production in 2018.

The alliance is a step forward in Abbott Labs’ strategic decision to invest in China in the long term. Abbott Labs expects to invest $400 million in its China operations in 2014.

In Jun 2014, Abbott Labs opened a state-of-the-art nutritional manufacturing facility in Jiaxin. In addition, it opened two research and development centers in Shanghai earlier in the year.

China is a key emerging market for Abbott Labs. We note that Abbott Labs’ international nutrition sales were adversely impacted by a supplier recall initiated in Aug 2013 in China and two other markets for certain pediatric nutritional products. Although there were no quality issues with the recalled products and the supplier subsequently determined the products were safe for consumption, sales were disrupted.

Abbott Labs, a large-cap pharma, currently, carries a Zacks Rank #2 (Buy). Other large cap pharmas which look attractive include AbbVie (ABBV - Free Report) , Allergan (AGN - Free Report) and Johnson & Johnson (JNJ - Free Report) . All three carry a Zacks Rank #2.

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