Companies compete to build dairy farms to ensure supply

Despite some problems in China's dairy farming industry such as outbreaks of dairy cattle diseases, the quality of raw milk produced by domestic farmers and enterprises has improved obviously in recent years, a research institute said in a white paper released on Tuesday.

Thanks to improvements in dairy farming scale and technology, the quality of raw milk has gradually improved, and is much better than in the period prior to 2008, when a deadly toxic milk powder scandal was exposed, said the white paper released by Sino-Dutch Dairy Development Centre (SDDDC), which was set up by China Agricultural University (CAU), Wageningen UR and Royal FrieslandCampina N.V., in the context of strengthening dairy cooperation between China and the Netherlands.

Prior to the melamine scandal in 2008, the milk fat and milk protein levels of raw milk from large-scale dairies in China were only 3.62 percent and 2.94 percent, respectively. While after six years' development, the milk fat and milk protein content at large-scale dairies has increased by 5.3 percent and 6.5 percent, respectively, said the white paper, quoting data released by the National Dairy Industry and Technology System.

"China's dairy industry is transforming," Li Shengli, a professor with College of Animal Science and Technology at China Agricultural University, said at a press conference Tuesday.

Li noted that the construction of larger dairy farms and the involvement of institutional investment are the development trends for the dairy farming industry.

Despite the improving quality of raw milk, Li also noted that "the gap in development levels between China and countries with advanced technologies is still very large."

Some problems remain in China's dairy farming industry.

For instance, due to the lack of alfalfa hay and other high-quality forages, and improper feeding management technologies, the raw milk has a low milk protein ratio, said the white paper.

Dairy cattle disease control is also "problematic," said the white paper, giving examples such as foot-and-month disease outbreaks that occasionally occurred in recent years as the vaccination system is out of date.

The white paper also warned that the number of dairy cows and milk output declined recently along with the exit of a number of private farmers, due to the impact of rising feed costs, ineffective feeding and rising beef prices.

To secure raw milk supplies, both foreign dairy companies and domestic enterprises are speeding up the building of dairy farms in China.

New Zealand dairy enterprise Fonterra and US healthcare company Abbott jointly announced in July that they would together build up to five dairy farms in China with total investment hitting $300 million.

The planned farms would be Fonterra's third dairy base in China if the plan is approved by Chinese authorities.

In September 2013, China Modern Dairy Holdings and two private equity firms KKR &Co LP and CDH Investments announced they would jointly invest $140 million in a joint venture to build two dairy farms in China.

It was very important for dairy companies to monitor the quality of the entire dairy chain so as to secure their product chain, which is "what we call ensuring quality from grass to glass," Cees 't Hart, CEO of Royal FrieslandCampina N.V., said at the press conference Tuesday.

Royal FrieslandCampina and China Huishan Dairy Holdings Company announced in October the launch of a joint venture, which will locally source and produce infant formula under a new brand for the Chinese market and have full control over the entire supply chain.

Hart said at the press conference in October that the main reason that his company chose Huishan as its partner was that the latter has a complete business chain including self-owned dairy farms, which guarantee safe raw milk.

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