Major Chinese dairy firm Inner Mongolia Yili Industrial Group Co Ltd is planning significant investments in large-scale dairy operations to keep up in the cut-throat dairy market, a top executive said on Wednesday.
Pan Gang, Yili's chairman and president, said in an interview that the firm expected to invest roughly 1.5 billion yuan ($200 million) this year in large-scale dairy farms and processing facilities, keeping up a similar pace next year.
"Our biggest challenge is that China's methods of raising cows and the construction of dairy bases is not keeping up with the development of the industry -- we need to step up our efforts in that area," Pan told Reuters on the sidelines of the Communist Party's Congress.
The firm has invested in around a dozen large-scale dairy operations so far this year, most with about 300 to 500 cows each, Pan said.
He added that Yili, based in the Inner Mongolian capital Hohhot, planned to develop three to five facilities with about 5,000 head each that would also serve as centres for research and development.
The firm currently has no plans to take on strategic foreign investors or raise additional capital through a Hong Kong listing, Pan said, adding that it would consider acquisitions if it found suitable targets.
Yili's push for scale is being driven in part by rising price pressures, Pan said. Rapidly rising prices for grain and other inputs have forced the firm to pay farmers roughly 10 percent more for milk on average over the course of the year, he said.
FARM AID
Pan praised the government's recent move to provide subsidies to dairy farmers as good for the market's overall stability, adding that while milk prices would definitely go up, it would not be as pronounced as recent rises in pork prices, which have helped push consumer inflation to a decade high in recent months.
Beijing approved the subsidies last month. Analysts reckoned some 40 percent of dairy farmers were losing money, stuck between rising feed costs and lagging increases in milk prices.
Pan said that cut-throat competition -- with rivals including Meng Niu Dairy and Bright Dairy & Food Co. -- made it difficult to pass costs on to consumers, and to pay farmers more.
Despite the competitive pressure, Pan said he expected the firm's revenues to grow by about 15 percent this year: "That shouldn't be much of a problem."
Longer term, Yili aims to become one of the world's 20 biggest milk companies by 2010, Pan said -- an aim he said would require the firm to grow by about 10 percent a year.