Yili partners with No.1 US dairy firm

Inner Mongolia Yili Industrial Group Co announced Wednesday that it has formed a strategic alliance with Dairy Farmers of America (DFA), the largest dairy cooperative in the US.

Yili has not disclosed the form or purpose of the alliance, but several industry analysts expect the two dairy giants to form a joint venture and explore the market for high-end products.

"Yili and our US partner are still working on the cooperation plan, and there are many details that have not yet been decided," a Yili employee told the Global Times on Wednesday on condition of anonymity.

DFA, founded in 1998 and headquartered in Kansas City, Missouri, owns 18,000 large-scale farms in 48 US states. Its products, including cheese, butter and dairy ingredients, are exported to Europe, Central America, Asia and elsewhere.

The US dairy product manufacturer was not available for comment by 10:00 pm Wednesday.

Song Liang, a dairy industry analyst, told the Global Times on Wednesday that the two companies are likely to form a joint venture or exchange shares.

"It is not going to be a short-term cooperation. The two parties will probably sign important contracts and be closely tied, and they are likely to take on significant obligations in a newly formed company," Song said.

DFA could serve as a long-term and stable supplier of high-quality raw materials to Yili, he noted.

"DFA is famous for its butter, cheese and most importantly whey powder, which Chinese companies always import from other countries," Song said. "By forming an alliance with DFA, Yili will be able to have a stable supply of whey powder. This reduces Yili's risks and helps the company realize optimal allocation of resources."

Yan Qiang, an analyst from Beijing-based Hejun Consulting, told the Global Times Wednesday that a possible joint venture with DFA could be part of Yili's plan to go international.

"Yili wants to import advanced management styles as well as foreign capital before it explores the global market," Yan said, adding that the Chinese dairy giant might also be interested in adopting DFA's technologies for its own manufacturing processes.

Yili is not the only dairy product manufacturer in China that has sought international opportunities.

China Mengniu Dairy Co, a major Yili competitor, in late May formed a joint venture making ­yogurt with France's multinational dairy goods and baby nutrition producer Groupe Danone. And Shanghai-based Bright Food has a manufacturing base in New Zealand.

The Yili deal will help DFA break into the China market, where hundreds of thousands of dairy consumers have lost confidence in domestic products due to multiple scandals that have plagued the industry in recent years.

"Chinese consumers have huge demand for imported milk products and are wealthy enough to pay a high price for what they want," Yan said. "That's a piece of cake that DFA doesn't want to miss."