Swiss food giant Nestle recently inaugurated a dairy farming institute in northeast China’s Heilongjiang province, which includes several classrooms and three dairy farms, despite the current oversupply of dairy products in the country, Shanghai’s China Business News reports.
During the construction of the institute over the past two years, the Chinese government has rolled out stringent regulations governing the dairy industry, including a policy demanding that formula manufacturers build their own facilities to control milk supply, the report said.
Nestle has built three milk supply bases in China in Shuangcheng, Heilongjiang province; Laixi, Qingdao province; and Hulunbeier, Inner Mongolia.
The company buys about 600,000 metric tons of fresh milk per year, which is sufficient to meet more than two-thirds of its demand for raw milk.
In light of this, Nestle has signed a memorandum of understanding (MoU) with the local government in Heilongjiang to spend 2.5 billion yuan (US$408 million) to build a fresh milk supply base in the province to facilitate large scale cattle ranching and help modernize Chinese dairy farming practices, according to Zhang Guohua, chairman and CEO of Nestle Greater China.
China was facing a serious shortage of milk during the second half of 2013. The situation changed after dairy products imported from New Zealand experienced a sharp price drop, leaving domestic dairy processing companies looking to reduce inventories of imported raw milk powder they had stocked up on. As a result, since February the country has seen a glut of milk supply.
A domestic dairy giant reportedly accumulated a surplus of 2,000 tons in milk supply per day recently.
The development has posed a stiff challenge for Nestle, which has begun considering whether it should proceed with the project in Heilongjiang.
However, the company has decided to stick to its original promise of promoting the sustainable development of China’s dairy industry by going ahead with the project for building a dairy farming institute. This means it will not take current economic profitability into account, according to the report.
Source: Watch China Times