Yili looks to Italy for better milk

During the first three quarters of the year, Yili generated operating revenue of 36.5 billion yuan ($5.9 billion).[Photo/China Daily]

Chinese dairy company Inner Mongolia Yili Industrial Group Co has formed a "strategic partnership" with Italian peer Sterilgarda Alimenti SpA, allowing Yili to upgrade its technology and improve the quality of its liquid milk.

Yili announced the agreement in a filing to the Shanghai Stock Exchange. It didn't give further details.

Song Liang, a dairy industry analyst, said that collaboration with top global dairy producers will boost Yili's product quality and technology levels, as well as expanding its dairy resources.

The Italian company is a specialist in filter membrane technology, which can remove harmful bacteria and impurities and keep milk fresh for four to eight months without preservatives.

The technology also allows low-temperature sterilization, which maintains the nutritional value of the milk.

Song said Yili and Sterilgarda Alimenti are likely to establish a joint venture and create their own brand of liquid milk. Having that brand would allow the JV to tap into the high-end market and raise the profit margin for liquid milk, which accounts for a large share of the dairy products consumed in China.

During the first three quarters of 2013, Yili generated operating revenue of 36.5 billion yuan ($5.9 billion) and net profit of 2.52 billion yuan, up 82.7 percent.

Song said that the financial results demonstrate Yili's resilience amid a tough environment this year for dairy companies, which have faced milk shortages that limited their output and raised production costs.

Earlier this year, Yili allocated 1.1 billion yuan to build up an infant dairy production base in New Zealand, which will make baby formula for the Chinese market.

The company has also entered into a strategic partnership with United States-based Dairy Farmers of America Inc, the largest dairy organization in the US, for collaboration in procuring raw material and managing dairy farms.

Joining forces with foreign peers will reduce the risk of going abroad for Chinese dairy producers, said Song.

Yili's Chief Executive Officer Zhang Jianqiu told a recent industry conference that the expansion of Chinese dairy producers reflects the diverse consumption demand in China.

"Chinese consumers have grown more and more similar to international consumers in terms of dairy consumption behavior," Zhang said.

The Yili group is also strengthening its domestic production capacity, with plans to invest $50 million in China Huishan Dairy Holdings Co to secure its milk supply. The move comes amid government pressure for industry consolidation.

Zhang said milk sources are the key to the quality of the Chinese dairy industry. Since 2007, Yili has invested 8.9 billion yuan to establish standardized dairy farms.