Pastures new battleground for Chinese real estate billionaire

SHIJIAZHUANG - When Xu Xiaobo decided to spend all his savings raising cows five years ago, his EMBA classmates thought the real estate tycoon had went crazy.

Xu, 47, meant what he said. He spent 460 million yuan ($70 million) in Gucheng county, northern China's Hebei province, creating a massive pasture for more than 10,000 Australia-imported Holstein cows.

Getting into the dairy industry needs courage in China. The market is dominated by several giants such as Yili and Mengniu, and Chinese consumers are turning to overseas milk products, especially after melamine-tainted baby formula produced by China's Sanlu Group killed six children and made 300,000 sick in 2008.

Sanlu, once a major dairy producer based in Hebei, went bankrupt after the scandal.

"It does not matter if China has one fewer real estate developer, but I do hope I can make a difference in China's dairy industry," Xu said.

Xu's decision was partly fueled by an unpleasant incident, when he was kept under investigation for 4 hours by the Hong Kong customs authority in August 2012, as he was returning to the Chinese mainland carrying eight cans of milk powder for his new-born son. Each person is only allowed to carry two cans.

"How come such a big country as China could not produce safe and affordable milk?" Xu said. He decided to act.

He spent more than 3 million yuan touring a dozen countries to find the best solution before he chose Gucheng to start his dairy business. Xu started building the pasture in September 2014 and completed the project 15 months later. The number of milking cows grew to 4,800 at present from just one in February 2016.

To ensure quality, all the cows and milking equipment, including some forage grass, were imported. Consumers can watch real-time videos of the cows through a mobile phone app.

"Everything the cows eat is traceable. Cow dung is used to produce methane for power generation, and the solide waste produced in the process is turned into organic fertilizer," Xu said.

Xu's two major products, packaged pure milk and yogurt, sell well due to the growing demand for quality dairy products from China's growing middle class.

"China's agriculture will be strong enough to export milk to Europe in 10 years," Xu said.

A whole new model

Xu walks a different way from his predecessors. He has no processing plant but outsources production to Bright Dairy, a major Chinese dairy producer, to cut costs.

Unlike traditional dairy giants that spend billions of yuan on TV and outdoors advertising, Xu spends little on traditional marketing channels.

Xu prioritizes social media platforms instead. His inspirational video and story went viral on several famous platforms, bringing him hundreds of thousands of followers who later became clients.

He initiated an "adopt a cow" program on social media in December 2016. Under the program, subscribers pay 2,999 yuan a year to get the milk from a cow, or a box of packaged yogurt, delivered once a week directly to their homes. They can also monitor the living condition of the cow, on their phones.

"We have no dealers and we do presale online," Xu said.

Since the launch of the program a year ago, sales revenue has reached 70 million yuan, though December is the first month to record a profit, according to Xu.

"The monthly profit is around 3 to 5 million yuan. The market is promising as the number of subscribers grows day by day," Xu said. "Alibaba [China's largest e-commerce platform] might die in 100 years, but my company might still be living well."