KKR takes stake in Chinese milk producer with US$150 million

Kohlberg Kravis RobertsKKR, the US private equity fund, confirmed a landmark investment in a Chinese milk producer and unveiled aggressive expansion plans for the company.

 

This comes at the heels of China's effort to reinvent their dairy industry which was badly dented by last year's melamine scandal. The deal is the largest of its kind involving a global private equity group and a dairy producer.

 

KKR said that it had completed a series of investments, understood to total about US$150 million, in Ma Anshan Modern Farming, otherwise known as Modern Dairy, a company based in China's central province of Anhui.

 

David Liu, head of KKR Greater China, said US fund now owned a "significant minority stake" in the company. KKR has not previously commented on the investment.

 

Modern Dairy operates seven nationwide production facilities with total annual capacity of 150,000 tonnes of raw milk.

 

KKR said that the company planned to build or acquire up to a further 30 large-scale farms over the next few years.

 

Liu said that KKR had brought in both capital and expertise to help Modern Dairy develop world-class facilities.

 

Most raw milk comes from China's 1.3 million farmers who typically own between five and 10 cows each. They supply to middlemen, who were blamed for adulterating the milk to boost profits.

 

The yield of the average Chinese cow is about half of that produced by modern farms in Canada or Australia, a gap that KKR believes can be closed with the introduction of modern techniques.

 

Last year it was revealed that 22 dairy companies had sold products that contained melamine, an industrial chemical that boosts protein levels but in high doses can cause kidney stones. More than 50,000 children fell ill and four infants died. Modern Dairy was not involved in the scandal.

 

The scandal led to worldwide recalls of foods that contained Chinese dairy ingredients and tarnished the image of Chinese products well beyond the dairy industry. It also highlighted gross inefficiencies in quality control of China's fragmented and rapidly growing dairy industry.