Chinese dairy interests expanding preparing for new incentives in the industry by acquisitions or expansion

Chinese dairy interests expanding preparing for new incentives in the industry by acquisitions or expansion

China imported 1.52 million metric tons of dairy products from January to November 2013, up 35.7%, according to that country's  General Administration of Customs.

New Zealand was responsible for the lion's share of those imports at 86%.

Meng Jie, an analyst at China Dragon Securities, said on the China Daily website at the weekend Shanghai Pengxin’s deal with Synlait in New Zealand may be inspired by talk that China will soon announce new incentives for the dairy industry. Companies in the sector are preparing for that development through acquisitions or expansion, added Meng.

Shanghai Bright Holstan, a subsidiary of Bright Dairy & Food Co, has decided to invest about 450 million yuan to build a demonstration dairy farm in Anyang, Henan.

Bright Dairy & Food will invest 248 million yuan in a new demonstration dairy farm in Heilongjiang province.

Inner Mongolia Yili Industrial Group will invest $50 million in Hong Kong-based dairy firm China Huishan Dairy Holdings as part of its drive to secure milk supplies.

But Meng expressed concern about the outlook for Shanghai Pengxin, given its substantial holdings in New Zealand.

She noted that New Zealand's Fonterra, the world's largest dairy exporter, had to recall milk powder last year for safety reasons.

"As a mother, I now prefer domestic milk powder to imported brands. And for a dairy producer with low recognition of its brand among Chinese consumers, it is too risky to pour so much money into New Zealand dairy farms," said Meng.

Song suggested it would be better for Pengxin to set up joint ventures instead of taking control of dairy farms.

Pengxin last week won approval from Chinese regulators to buy a controlling stake in a 4,000ha dairy farm in New Zealand, part of its strategy to meet growing domestic demand with imports.

The takeover offer was extended to Synlait Farms on Nov 1, 2013. Shanghai Pengxin will make the purchase through SFL Holdings, in which it owns a 74% stake.

In a statement, Synlait said that 99.58 percent of its shareholders had accepted the offer before it closed on January 29.

According to media reports in New Zealand, the total offer price to be paid to shareholders is NZ$2.22 ($1.87) a share.

In 2012, Pengxin completed the purchase of 16 dairy farms in New Zealand with a total area of 8000 ha and 16,000 dairy cows.

United Kingdom-based research firm Mintel Group said last year that the Chinese dairy market will reach 66 billion yuan ($10.8 billion) by 2017.

It forecast that domestic supplies will fall short by 15 to 20% of that amount, driving some Chinese dairy suppliers to invest overseas.

"China's comparatively low quality and supply shortage of dairy products pushed many Chinese dairy companies to gain overseas resources," said Song Liang, a dairy industry analyst.

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