Milking the overseas market

Dairy producers from China need the best raw materials from abroad to be competitive at home

Chinese dairy companies are boosting their investments in Europe to gain access to high quality sources of raw milk in hopes of winning back market share and restoring consumer confidence in the country's scandal-plagued industry.

The most recent move came from Synutra International, China's third-largest infant formula producer, which signed an investment deal worth 100 million euros ($130 million) with French dairy cooperative Sodiaal, the fourth-largest dairy group in Europe.

A Synutra International's booth at an infant products show in Beijing. The company is the first successful case of a Chinese company investing in the European Union's dairy industry, after it injected 100 million euros into the French dairy cooperative Sodiaal. [Photo / China Daily]

The deal involves building two milk-drying plants in the Brittany region of France. The facilities, which are expected to be operational by early 2015, will have a production capacity of up to 100,000 tons of whey and milk powder per year.

The production will be entirely dedicated to supplying Synutra, according to Sodiaal.

Synutra's venture was the first successful case of a Chinese company investing in the European Union's dairy industry since Shanghai-based Bright Food lost its bid for a 50 percent stake of Yoplait, a sub brand of Sodiaal, to American company General Mills last year.

"This opportunity allows Synutra to secure its long-term supply of high quality raw materials and fuel Synutra's future growth while maintaining the highest quality standards for our products," says Zhang Liang, chairman and CEO of Synutra, in a statement.

European countries such as France have extensive resources and experience in the milk-processing sector and the highest safety and quality standards.

"Gaining access to these areas is the main motivation behind the recent boom of Chinese investment," says Xu Qinghua, head of China business services at accounting firm Ernst & Young in France.

"Unlike the case of Bright Food, Synutra adopted a gradual and less aggressive approach. Its investment is not targeted at owning control of a foreign company. Instead, the partnership focused on building facilities and opening the Chinese market," Xu says.

"Being a private company also gave Synutra an advantage as the French side can be sensitive about Chinese companies with government backgrounds."

For Synutra's French partner Sodiaal, a long-term alliance with a Chinese dairy producer was a good fit with its global strategy to boost the industrial and technological capacities of its production sites, in addition to helping open the Chinese market to its products.

"The Synutra Group will bring its in-depth understanding of Chinese consumer expectations, its dynamic position in this fast-growing market and its ability to invest in innovative and high-performance facilities," says Yves Rambaux, CEO of Eurosrum, the dairy ingredients business unit of Sodiaal Group, which is closely involved in the new project.

Over the past five years, Eurosrum has exported an annual average of 35,000 tons of milk, whey and demineralized whey powder to China, according to Rambaux.

"Our ambition is to respond to the growing demand from the Chinese market and we will be opening an office in China soon to be as close as possible to the market and to our local contacts," he says.