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June 23, 2022

 

Modern Dairy: Chinese dairy giant focuses on feed business

 

 

   

Established in March this year, Modern Feed (Tianjin) Co., Ltd. is invested by three parties: Modern Dairy, which holds 54% of the shares, COFCO Feed with 34% and Ningxia Shangling Animal Husbandry with 12%.

 

It should be noted that COFCO Group is technically the owner of Modern Feed, as Modern Dairy is the holding company of Mengniu Dairy, a subsidiary of COFCO. Furthermore, COFCO Feed is a wholly-owned subsidiary of COFCO Jiahua Industrial Company, a COFCO Group subsidiary specialising in feed processing, sales and technical services. Ningxia Shangling Animal Husbandry is a joint-stock company of Mengniu Dairy.

 

Established in 2005, Modern Dairy is the largest dairy farming enterprise and raw milk supplier in China and is headquartered in Ma'anshan City, Anhui Province. As of the end of 2021, it had invested in 34 farms in the country, keeping a total dairy cattle stock of 354,000 head, a 43% increase year-on-year. The annual milk yield of each cow was 11.3 tonnes, an increase from 11.1 tonnes in 2020, hence pushing last year's milk production to a new high of 1.61 million tonnes.

 

However, the upsurge in the prices of feed raw materials in 2021 has resulted in a substantial rise in Modern Dairy's milk output costs. On average, the cost of feed for dairy cows increased by about 30% in 2021, lifting the feed cost per kilogramme of milk by 19% year-on-year. This caused the company's operating gross profit margin to fall to 36.02%, from 40.84% in 2020.

 

Corn and soybean accounted for 42% and 13% of Modern Dairy's total feed cost, respectively, last year. Due to the war in Ukraine, the prices of these raw materials have soared further since February 2022.

 

Despite soaring costs, Modern Feed has a strong advantage that its competitors lack - its parent company. COFCO Group is China's largest grain, oil and food import and export company (with COFCO Feed mainly engaging in the feed processing business). Hence, Modern Feed, like COFCO Feed, would enjoy the advantages of centralised procurement of raw materials and business information sharing, which would help to maximise gains by reducing production costs.

 

Modern Dairy and COFCO Feed seek to expand the production capacity of Modern Feed rapidly — with an aim to develop Modern Feed into China's biggest dairy feed company, that can serve the entire dairy industry.

 

- David Lin, eFeedLink

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