Yunfeng, CITIC PE-Backed Yili To Invest $490M In New Zealand Dairy Project

Chinese dairy firm Inner Mongolia Yili Industrial Group Co. Ltd. says it will invest over RMB3 billion (US$490 million) to a new dairy project in New Zealand to build the world’s largest integrated dairy production base, according to a company announcement.

The project, called Yili Oceania Production Base, will have packaging, production, processing, research and development capabilities. It is located in Waimate, South Island.

In June this year, Chinese private equity firms Yunfeng Capital and CITIC Private Equity Funds Management agreed to invest at least RMB2 billion (US$320 million) in exchange for 60% of a unit of Yili named Inner Mongolia Yili Livestock Development Co Ltd.

The project in New Zealand, in which Yili has previously committed RMB1.2 billion and just added RMB2 billion new investment, will include a raw milk deep-processing project, a liquid milk plant, a milk powder production facility and a packaging plant.

At the same time, Yili and New Zealand’s Lincoln University signed an agreement on scientific cooperation across the whole dairy industry chain. The two sides will focus on innovative technologies for improving nutrition and quality of dairy products in the coming years.

According to market research firm Euromonitor, China’s total dairy consumption grew at 10% compound annual growth rate over the past five years, with premium dairy product consumption’s market share also expanding from 10% to 19%.

Despite the rapid expansion, China’s per capita liquid milk consumption is less than 10kg per year, compared with 32kg in Japan and 78kg in the United States, indicating massive future growth opportunities.

Private equity and other investors have been inking deals in the Chinese dairy industry aggressively. In March, Hong Kong-listed Fosun International agreed to acquire a 20.45% of Beijing-based dairy firm Sanyuan Foods Co., Ltd. for RMB$2 billion ($325 million). In February, Hong Kong-based Asian private equity firm RRJ Capital agreed to invest US$250 million in Shanghai-based Bright Dairy & Food Co., Ltd.

Last November, Hong Kong-listed Chinese dairy firm Yashili International Holdings Ltd. says that Temasek Holdings, Hopu Investment Management Co. and three private investors will buy a 13.24% stake of the company from China Mengniu Dairy for HK$1.6 billion ($213 million).

In another deal, Affinity Equity Partners is said to invest US$123 million into a joint venture with Beijing Capital Agribusiness Group to focus on growing its dairy farming business.

Last September, Kohlberg Kravis Roberts & Co. and CDH Investments formed a joint venture with Modern Dairy to build two large-scale dairy farms in China.

The Chinese dairy sector has already provided profitable returns for some private equity firms. Last May, KKR and CDH Investments agree to sell their stakes in China Modern Dairy to China Mengniu Dairy in a potentially profitable partial exit.

In the broader food industry, four big private equity firms announced plans in June to work alongside Chinese food conglomerate COFCO Group to build large-scale industrialized hog farms and meat processing plants in China.