Mengniu Dairy to build large-scale dairy farms in China

China Mengniu Dairy plans to invest CNY3.5bn ($552m) to set up 8-12 self-operated large-scale farms by 2015, to ensure the quality of its milk and to regain consumer confidence, after the melamine milk scandal of 2008.

The farms will feature about 1,000 to 10,000 heads of cattle, and will be located in China’s northeast and southern regions, as well as in the Hebei province and in Inner Mongolia.

The project will enable the company to source milk from its own farms. Currently, it sources 80% of the fresh milk from large-scale industrial farms, of which some are partly company-owned, while others have exclusive supply contracts.

Mengniu Dairy executive director Bai Ying said that establishing its own dairy farms will help to ensure the quality of its milk supply.

The company is also planning to slowly phase out sourcing from small farmers, who currently cater to one-fifth of its fresh milk requirement.

By shifting to large-scale farms, Mengniu Dairy expects improvement in the quality of cattle, control and feeding. To ensure safety, the company has assigned more staff to check the quality at small dairies and invested CNY30m ($4.73m) to procure quality assurance systems.

Following the melamine scandal in 2008, in which several dairy companies including Mengniu Dairy were implicated for using melamine in milk and infant formula, the Chinese Government passed a regulation in 2009 under which dairy firms will have to gain control of at least 70% of the raw milk they process.

In response, several dairy companies have been seeking to establish their own dairy farms. Bright Dairy Food is planning to build a CNY130m ($20.53m) farm in Hubei province, while Yili Industrial opened a CNY220m ($34.74m) farm in Inner Mongolia in May 2012.

Dairy firms with large farms are also supported by the government: a farm that raises more than 1,000 cows annually will be offered a subsidy of CNY1.5m ($0.23m).

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Image: By setting up its own large-scale farms, Mengniu Dairy expects improvement in the quality of cattle, control, feeding and milk supply. Photo: Igor Spanholi.