Chinese company, US farm coop to build milk-powder plant in Kansas

China's second-largest dairy producer and the Dairy Farmers of America (DFA) cooperative will build a plant in Kansas to produce powdered milk for the world's most populous country.

DFA will invest $70 million and Inner Mongolia Yili Industrial Group Co Ltd will put up $30 million for the plant, which will produce 80,000 metric tons of milk powder yearly, according to an agreement announced on Wednesday.

DFA is a Kansas City, Missouri-based cooperative and represents nearly 13,000 producers across 48 states and accounts for one-third of raw-milk output in the United States, according to the cooperative. It buys raw milk from its members and processes it into dairy products for wholesale

China's appetite for foreign milk powder is spurred by distrust in local products after a 2008 milk-powder scandal killed at least six infants and sickened 300,000 children.

Milk consumption in China is increasing as living standards rise. Last year,infant-formulasales in China reached 60 billion yuan ($9.79 billion) and sales are set to rise to 100 billion yuan by 2018. China's imports of milk powder, including infant formula, accounted for 38 percent of the global market in 2013, according to HSBC.

"There is a huge demand for dairy products in China. Like other developing nations, China is building up its diary industry but dairy is a complicated blend of agriculture, science and business," said Pamela Ruegg, associate professor of dairy science at the University of Wisconsin Madison.

Products like milk powder require high-quality milk, which DFA members can provide to the Kansas plant. In addition to the Kansas production facility, Ruegg said there is an opportunity for US businesses to export their dairy knowledge and technology to China.

"We are working on a project with Nestle to develop a training facility in China," Ruegg told China Daily. This summer the university was chosen to develop the curriculum for a new $400 million dairy training center being established by the Nestle Corp in China's northeast province of Heilongjiang. UW-Madison personnel will design and hold classes covering key aspects of dairy-farm management.

The announcement of the Kansas plant came as Australian mining magnate Gina Rinehart, the country's richest woman, announced plans to partner with a Chinese company in a A$500 million (US$435 million) venture to export infant milk powder from Queensland to China.

Bloomberg News reported that Hope Dairies Ltd, controlled by Rinehart's closely-held Hancock Prospecting Ltd, is seeking to acquire over 12,000 acres of farmland and is targeting production for the second half of 2016. The move into food production by Rinehart is designed to tap into rising demand from China's infant formula market after the country relaxed its one-child policy last year.

The surging growth in China's dairy marketplace has produced several deals recently. Last month Royal FrieslandCampina NV and China's Huishan Dairy Holdings Company Ltd unveiled a joint venture to produce and market infant milk formula in China. In January, Denver, Colorado-based WhiteWave Foods Co announced an agreement with the China Mengniu Dairy Company Ltd to manufacture and sell dairy products in China.

Milk powder buyers in China used to rely heavily on New Zealand and that country's Fonterra Cooperative Group Ltd. However, a drought in New Zealand in 2013 sharply curbed milk-powder production. Also in 2013, Fonterra said it found potentially fatal bacteria in one of its products, triggering recalls of infant milk formula and sports drinks in several markets including China.