Latest Milk Source Campaign in China: Bright Dairy’s Farm Investment and Fonterra’s Retreat

Domestic campaign of raw milk

On Mar. 16, Bright Dairy announced a non-public offering plan to raise 1.93 billion CNY from no more than 35 specific investors. Bright Food, the controlling shareholder of Bright Dairy, intended to subscribe for 51.73% of the additional shares to maintain its proportion.

As revealed by Bright Dairy, the fund raised in this offering will be mainly used for five domestic dairy farm projects, including four new dairy farm construction projects and one farm expansion project. Set close to Bright’s production bases in Shanghai, Wuhan, Chengdu,etc., these new farms will supply the plants with fresher raw milk, reducing the time interval between raw milk output and processing. With these new farms, Bright Dairy is able to improve its production capacity, satisfy the increasing consumption demand for low-temperature dairy products and guarantee the implementation of its national strategic layout.

On the same day, Bright Dairy also announced that its wholly-owned subsidiary Bright Hostlan dedicated to dairy farming has acquired 100% shares of Dingying Agriculture and Dingsheng Agriculture. Both of the two enterprises focus on crop plantation and animal feed sales. This acquisition helps Bright Dairy to reinforce its industrial chain, enhancing its anti-risk capability against the unstable forage grass market.

In recent years, a lot of domestic dairy enterprises have taken actions to compete for raw milk. For example, in 2020, New Hope Dairy acquired 100% shares of Huanmei Dairy; Firmus acquired 100% shares of YST Dairy Farm. Shen Meng, director of Xiangsong Capital, indicated that with the completion of this non-public offering, Bright Diary will take a relatively leading position in the East China market.

Fonterra's retreat

While domestic dairy enterprises fiercely compete in the campaign of milk source, the situation of foreign enterprises are quite different. On Mar. 17, Fonterra revealed in its mid-fiscal-year report that its dairy farm joint-ventured with Abbott will be sold by the end of 2021. Previously in Oct. 2020, Fonterra sold its solely owned dairy farm in China for 550 million NZD. Fonterra's retreat from the campaign of raw milk in China doesn't mean it gives up the Chinese market. On the contrary, it indicates that Fonterra has chosen the areas that show its higher competitiveness.

An expert of the dairy industry, Song Liang, analyzed that the features of domestic raw milk market make it difficult for foreign enterprises to improve competitiveness in China. Therefore, the domestic and foreign enterprises’ choices on their upstream operating strategy are different.