Mengniu to tap Danish dairy tech for food safety
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China Mengniu Dairy Company Ltd (Mengniu), a leading dairy product manufacturer in the country, is striving to tap Danish ranch management technologies to develop long-term benefits of product quality enhancement in the domestic diary products sector which has been plagued by food safety concerns in recent months.
Mengniu has been appointed by the Ministry of Agriculture to work with Arla to establish the China-Denmark Milk Technology and Cooperation Center as a platform to facilitate knowledge sharing in ranch management and risk management, according to the Mengniu statement. Through the international exchange and cooperation between the local and overseas dairy industry, it hoped that the overall performance of China’s dairy industry can advance to the world-class standard.
The agreement coincides with a visit to Denmark by President Hu Jintao last week.
“We forecast by the end of 2012, the long-term benefits of Mengniu’s product quality improvement will start to pay off after the introduction of these cooperation platforms,” Mengniu Chief Executive Officer Sun Yiping said in the Tuesday teleconference.
“We envisage that the company can develop into other dairy products such as baby formula, yogurt, cheese, butter and milk powder products in order to diversify the company’s product portfolio,” Sun added.
Arla Foods Amba (Arla) has become Mengniu’s second largest strategic shareholder holding approximately 5.9 percent of its equity, alongside Mengniu’s single largest shareholder, COFCO Corporation, China’s leading food and beverage company. After the acquisition, Arla will participate in Mengniu’s operations, highlighted by the introduction of the ranch system from Denmark and its quality control system into the front-end quality control system of Mengniu, according to the company’s Tuesday statement.
“Mengniu is developing the upper stream of the dairy industry, that is, to ensure the milk sources of its dairy products can be free from pollution. This can enhance its product image so that it can raise its selling prices to enjoy higher profit margins in the future,” said Kenny Tang, a securities business division manager at AMTD.
“Mengniu will benefit from improving brand image and production technology upgrade brought by the cooperation in both quality control and products innovation,” Sincere Securities Chief Executive Officer Louie Shum told China Daily.
Meanwhile, Credit Sussie analyst Kevin Yin raised the Mengniu share price to ‘outperform’ as the new alliance will improve product quality, accelerate milk powder operation and introduce high value added new products in the market.
The Mengniu’s acquisition paves the right direction in reinforcing supply-chain management that can enhance the brand status, said a research report from Deutsche Bank.
Arla, the Nordic region’s biggest milk producer, said in its last Friday statement that it plans to invest 1.7 billion Danish kroner ($289 million) in China, including the acquisition of a minority stake in Mengniu. Arla said the agreement will help boost sales in China five fold by 2016 as Mengniu has agreed to increase marketing of Arla products in China. In 2011, Arla’s revenue from China was about 700 million Danish kroner.
