Modern Dairy and partners to establish two farms in China

Modern Dairy has teamed up with private equity firms KKR and CDH to establish two new large-scale dairy farms in China over the next 18 months, with an investment of $140m.

For the project, the trio have formed a joint venture (JV) to provide premium raw milk to Chinese consumers.

KKR, CDH and Modern Dairy will hold 61.5%, 20.5% and 18.0% stakes in the JV respectively.

KKR plans to finance the project through its China Growth Fund.

Located in Shanghe county in eastern China’s Shandong province, the two 10,000 cow farms will have suitable climatic conditions for dairy farming and support from the local government.

The farms will acquire Modern Dairy’s excess cows generated through natural herd growth.

In addition, there is also an agreement for Modern Dairy to buy back the JV farms in three years, which will boost its long-term growth.

Subject to customary approvals, the transaction is expected to be completed in the fourth quarter.

Modern Dairy CEO Gao Lina said that there is strong demand for high-quality milk from large-scale farms due to the growing demand for premium dairy products.

"Following our successful partnership in Modern Dairy, we have chosen once again to partner with KKR and CDH in a new venture to help meet Chinese demand for safe and high-quality milk," Gao added.

KKR member and KKR China head David Liu said that Modern Dairy’s management saw a need arising from increasing demand for safer and healthier milk.

"The solution was large-scale dairy farm that incorporated global best practices. Today, food safety remains a top priority and this new investment helps increase the supply of premium raw milk in China," Liu added.

KKR and CDH invested in Modern Dairy in 2008; since then, the dairy firm has increased its herd from 24,000 dairy cows and three farms to an approximate 180,000 dairy cows and 22 farms.

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Image: The JV will provide premium raw milk to Chinese consumers. Photo courtesy of Alessandro Paiva.