A worker at the workshop of Mengniu in Jiaozuo, Henan province. [Photo/China Daily]

Move highlights domestic dairy industry's shift to pasteurized milk

The move underscores the domestic dairy industry's shift to pasteurized milk and other low-temperature dairy products to get ahead of its international competitors.

Modern Farming is the country's leading farm company, with the largest number of cattle and a leading provider of raw milk. The company operates 26 farms with 229,200 cows.

The cooperation allows Modern Farming to produce pasteurized milk, yogurt and pure milk, according to a statement from Modern Farming.

Mengniu, which controls about 61.25 percent of Modern Farming, has been acquiring raw milk from the farming company.

Mengniu's 2016 annual financial report has shown that the company grew 9.7 percent annually to 53.8 billion yuan in revenue.

Mengniu will cover the East, Central and even the South China market in terms of pasteurized milk and yogurt through Modern Farm's operations in these regions.

Song Liang, a leading dairy analyst, said it is a clear trend that dairy giants in China have shifted their focus to pasteurized milk production prompted by the strong demand in the market.

Domestic dairy producers have more strength in pasteurized milk manufacturing than international counterparts, who are strong in standard temperature milk and benefit from low cost production, Song said.

But challenges remain in the supply chains for pasteurized milk, he said. "The cold chains for delivering pasteurized milk are not strong so far even in first and second tier cities not to mention in third and fourth-tier cities," Song said. "Raw milk supply in South China is also limited."

Earlier, Inner Mongolia Yili Industrial, China's biggest food and dairy group, announced plans to bid for the entire stake of Stonyfield in May, an organic yogurt producer in which Groupe Danone holds a majority stake, for about 5.9 billion yuan, Yili announced on Wednesday.

The deal is in its preliminary stages and whether the company will win the bid will be determined by many uncertain factors, Yili said in the announcement.

This is another large scale acquisition attempt for China's dairy giant Yili, which dominates standard temperature milk markets, to strengthen its competitive advantage in low temperature yogurt markets as a new profit-making engine. Last month, it withdrew from a bid to acquire a 37 percent stake in China Shengmu Organic Milk Ltd for 4.6 billion yuan.

New Hampshire-based Stonyfield Farm is the world's largest organic yogurt producer which includes many popular US yogurt brands such as YoBaby and YoToddler. The turnover of Stonyfield was $370 million last year, with $50 million in net profits.