Asia briefing: Acquisition a major gamble for China’s biggest dairy producer

Here's one that will be of interest to Irish dairy firms which have been busy in China in the last few months, especially in the infant formula area.

China's biggest dairy producer China Mengniu Dairy said it would offer to acquire Yashili International, one of the country's leading makers of infant milk formula and baby food, in a deal worth 12.45 billion Hong Kong dollars (€1.22 billion).

It’s a major gamble, given that domestic brands have much work to do to regain the trust of China’s parents following a series of scandals involving tainted baby formula.

The most serious scandal to date took place in late 2008, when the Chinese authorities accused more than 20 domestic producers of selling milk adulterated with the industrial plastic melamine.

Six infants died and more than 50,000 babies were hospitalised. In 2011, regulators closed more than 400 dairy farms for violating sanitation and certification standards.

Yashili, based in the southern city of Chaozhou, was one of 22 baby formula producers whose products were found by government quality control inspectors to have been contaminated with melamine.

Like the other firms, Yashili blamed raw milk dealers seeking to artificially boost the measured protein content of their milk. It suspended its production and issued several product recalls.

Then, in 2010, in the face of ongoing public wariness about domestic baby formula, Yashili made a strategic decision to start sourcing 100 per cent of the raw milk powder used in its formula from overseas suppliers, mainly in New Zealand.