Mengniu Plans More Raw Milk Bases

CHINA - Liquid milk producer China Mengniu Dairy will invest more this year to expand raw milk bases in the country, according to a senior executive.

20 April 2009

2 minute read

Asia

"Mengniu plans to pour more money to acquire shares in existing pastures or build up its own pastures," Executive Director and Vice-President Yang Wenjun told reporters on Friday at the sidelines of the eighth Boao Forum for Asia Annual Conference in Hainan province.

The company aims to increase the number of its mega-size pastures, each of which can house up to 10,000 cows, to 20 over the next three years. It currently has seven such pastures in Inner Mongolia, Shandong, Heilongjiang and Anhui.

By having more mega self-controlled pastures, the company plans to increase raw milk production and also ensure quality.

Self-controlled pastures, which can house between 4,000 to 10,000 cows, accounts for two-thirds of the company's total milk supplies.

The tainted milk scandal that surfaced in September last year affected most of the milk producers in the country. While Hebei Sanlu was declared bankrupt, the scandal seriously tarnished the image of Mengniu Dairy Group and Yili Industrial Group, both based in the Inner Mongolia autonomous region.

Consequently Mengniu posted a net loss of 948.6 million yuan in 2008, its first loss since listing in Hong Kong in 2004. The company also decided not to pay a final dividend this year.

Yang declined to answer queries on the outlook for this year, but said sales of milk products have already recovered to 80 percent of the levels it had before the milk scandal broke out.

However, insiders and experts remain prudent on sales prospects this year. Jiang Zhihui, analyst with Daoheng Securities said the company will not record substantial revenue losses but its margins are expected to drop further this year.

Wang Dingmian, an official with Dairy Association of China, expressed the view that the company may see further losses this year.

Despite the weakening confidence of domestic consumers, Yang expected "the country's dairy market to expand at a rather high speed - one or two times the country's GDP growth".

He said the global financial crisis has had little impact on sales of dairy and food products.