The Wall Street Journal
written by WSJ China RealTime staff
Thursday May 22, 2014
China is getting access to some of the most productive cows in the world.
China State-owned Bright Food Group Co. said Thursday it is finalizing an agreement to take a 56% stake in Israel’s Tnuva Food Industries Ltd. from private-equity firm Apax Partners. Financial details of the deal weren’t disclosed.
The deal is in line with China’s attempts to diversify its food sources, includes dairy products, as demand explodes and domestic production fails to catch up. China is particularly reliant on New Zealand for dairy, especially for whole milk powder used in infant formula production. To widen its supplier base, China has recently invested in milk powder plants in Europe and the U.S., for example.
Investing in Tnuva will give China access not only to Tnuva’s dairy products, but also Israeli dairy technology, considered to be the most advanced in the world.
“The yields of cows in Israel are on average the highest in the world,” said Jacob Robbins, a former Coca-Cola Co. executive and founder of Emeterra, a Singapore-based agribusiness company. “There is a clear linkage and very visible logic” behind Bright Food’s thinking.
According to the Israeli Dairy Board, Israeli cows each produce almost 12,000 liters of milk a year. That compares to about 4,100 liters each for New Zealand cows and 5,500 liters for Australian cows, though feeding costs are lower there as the cows are pasture-fed as opposed to Israel’s grain-fed variety.
Israel’s technology would be a boon to China’s dairy industry, which suffers from low yields and expensive feed costs. Israel, like China, suffers from a lack of arable land dry conditions, yet has mastered intensive dairy cattle raising and production.
China’s cows each produce just four tons of milk a year, about 3,800 liters, and input costs are particularly high thanks to expensive feed, which is imported in large amounts from the U.S. But demand for dairy products from milk to cheese is growing rapidly, and as a result, foreign investors including private-equity firm KKR & Co. and Danish dairy giant Arla Foods have piled in to China’s dairy industry, offering capital and expertise.
Despite efforts to overhaul its domestic dairy industry following the melamine food scandal in 2008, China’s milk production hasn’t managed to catch up to rising demand. Raw milk production in 2013 posted its biggest year-on-year drop since 2009 in percentage terms 35.31 million tons, according to the China National Bureau of Statistics, while imports for dairy products continue to rise. The U.S. Department of Agriculture estimates, for example, that China imported about 520,000 tons of whole milk powder last year, a 28% increase from the previous year.
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