UPDATE: CHINA: Race on to build Chinese milk supply - analyst

By Katy Askew | 2 November 2012

Dairy companies look to build safe supply chain

Dairy companies look to build safe supply chain

Dairy companies operating in China are hotly competing to build a reliable and trusted local milk supply, a leading sector analyst told just-food this morning (2 November).

According to James Roy, senior analyst at China Market Research Group, consolidation in Chinese milk supply is a "big trend" as dairy processors look to emerge from the long shadow of the tainted milk scandals of recent years. By developing a safe and secure supply chain dairy majors hope to rebuild consumer trust in the safety of their products.

"Consumer trust in domestically sourced dairy products has been very low for years, and winning back that trust is hugely important for dairy companies."

To this end, Fonterra announced earlier today it has secured a deal to open an additional two large-scale farms in Hebei Procince, bringing its number of farms in the region to five and completing the first of its planned "farm hubs" in the country. The company said that, once fully operational, the hub would produce around 150m litres of milk per annum.

"The demand for dairy in China is expected to double by 2020 and much of this growth will be met from local production. We need to build a safe, sustainable local milk supply to feed this growth," Fonterra Greater China and India president Kelvin Wickham said.

Wickham revealed the company plans to create "several" more farming hubs throughout China with the goal of producing 1bn litres of milk by 2020.

Creating a secure milk supply is "especially important" for Fonterra "given their association with Sanlu during the 2008 melamine scandal", Roy suggested.

However, he emphasised that Fonterra is one of many companies focused on developing a secure milk supply in China.

"We are seeing a lot of companies make a push to increase control of their supply," Roy said. "One example is Nestle, which is investing about US$400m in a milk facility in Heilongjiang in northeast China - their plan is to use the facility to help introduce modern dairy farming techniques in the area and improve the quality and security of the local milk supply."

Sectors: Dairy, Emerging markets, Food safety

Companies: Fonterra, Nestle

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