Nestle to invest in fresh milk production base

Swiss-based food giant Nestle Ltd will invest 2.5 billion yuan (US$395.41 million) to build a fresh milk supply base in Northeast China, following allegations that it was trying to procure milk from farmers at below-market prices a few months ago.

Nestle will establish China's biggest fresh milk supply operation in Shuangcheng, Heilongjiang Province, within five years, including a training center on dairy farm management.

"The investment is a continuation of Nestle's efforts to develop Shuangcheng city into a leading milk base in China," Nestle China spokesperson He Tong told the Global Times yesterday. Nestle built a joint venture with a local dairy company in Shuangcheng in 1986.

Last October, Shuangcheng's milk farmers were reported to have sold milk to Nestle below government-mandated prices because of the company's monopoly position locally. There are more than 20,000 milk farmers who produce 1,200 tons of milk every day in the city

"Nestle hopes to recover from the incident in part by investing in a fresh milk supply base in Shuangcheng," Zhou Siran, a food industry analyst at CIC Industry Research Center, told the Global Times Thursday.

But the investment will be helpful to control the quality of milk and offer professional training to farmers, which will contribute to the long-term development of the company in China, Zhou noted.

As scandals hurt the image of domestic dairy companies, more consumers are turning to foreign brands.

The market share of foreign brands has increased to more than 50 percent, after the melamine crisis in 2008, Wang Dingmian, chairman of the Guangzhou Dairy Industry Association, told the Global Times Thursday.

The top five foreign brands in China are Mead Johnson, Abbott, Wyeth, Dumex and Nestle, and it is still hard for Nestle to establish a monopoly position in the market because the other competitors are also quite strong, Wang noted.

"Domestic dairy companies have to focus on the need of consumers, or it's very hard for them to win back the trust of the Chinese consumers and gain more market," Ma Wenfeng, an analyst at Beijing Orient Agribusiness Consultants, told the Global Times Thursday.