Source: Baidu

On 10 March, Zhongding Dairy Farming Co., Ltd. (Zhongding Dairy Farming) and CDH Investments jointly made an announcement in Beijing that CDH Investments had injected USD22.8 million (RMB140 million) into the milk producer. Together with USD42.3 million (RMB260 million) from other investment institutions, the enterprise gained an overall fund injection of USD65.1 million (RMB400 million).

Zhongding Dairy Farming was founded on 23 May, 2013. From its 8 key executives, 7 are former executives from China Mengniu Dairy, including its general managers of milk sourcing Sun Guoqiang (central China) and Bao Guoku (western China). The company has registered capital of USD7.8 million (RMB48 million). It is engaged in dairying and agricultural technology promotion, and is the largest dairy farming enterprise in Hebei Province. The new funds are designed to accelerate its strategy of consolidating these farms to achieve economies of scale and to provide high quality dairy products.

In addition to Zhongding Dairy Farming, other enterprises set up by former Mengniu staff (and enjoying stable partnerships with Mengniu) include:

• China Modern Dairy Holdings Ltd. (Modern Dairy), Inner Mongolia Shengmu High-Tech Farming Ltd. (Shengmu Farming) - both dairy farming enterprises
  
• Inner Mongolia Saikexing Reproductive Biotechnology Co. Ltd. ( SK·Xing) - specialised in breeding and production of forage grass

The company's dairy farming activities are based on 3 core strategies:

• Farm management
• Farm acquisitions
• Strategic investment into dairy farms

Amongst these, farm management is the most important by far. The company sends 6-person teams (director, veterinarian, accountant, etc.) to its partners. These are small- and medium-sized dairy farms and collective dairy farms, and the process involves the team taking over their entire management, across areas such as forage grass, feeds and farm equipment, breeding, milking and sales. Any profits achieved are shared between the partner farm owners and Zhongding Dairy Farming.

Zhongding Dairy Farming boasts strong competitiveness:

• Construction funds and operating cost are reduced. “When we make an investment into a dairy farm, this covers 10% of the capital required for constructing a new farm”, said Sun Guoqiang: “The operating costs also decline by 20%”
• Construction time is cut, so that when cooperation agreements with dairy farms are signed, the farms can be put into operation quickly

To date Zhongding Dairy Farming has "integrated" 32 dairy farms in one of the above 3 ways. These contain 25,000 cows and produce 260+ tonnes of milk daily; they are centred in North China, with a total investment of USD32.5 million (RMB200 million). Its milk is supplied to Yili, Mengniu, Bright Dairy and Shijiazhuang Junlebao Dairy, each taking 25% of the total. By the end of the year, it plans to have integrated 100 farms in total (100,000 cows), and expects the full-year profit to reach around USD4.9 million (RMB30 million).

The farm management strategy offers a means of easing the pressure on small- and medium-sized farms. The company contends that 70% of China's dairy farms have the potential to accommodate <1,000 cows, but run into problems such as high capital outlay and operating costs, low output, inconsistent quality and weak financial resources which can leave them exposed - hence the culling and milk dumping seen since late 2014. Li Shengli, Chief Scientist of the National Dairy Industry and Technology System, has stated that professional farm management will enable small- and medium-sized farms to achieve stable earnings and improve their output and quality.

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