A Chinese company and the Dairy Farmers of America, a dairy cooperative based in Kansas City, have announced an agreement to build a $100 million plant in Kansas.
The plant’s location was not disclosed, but it’s thought that western Kansas is the lending contender because that’s where most of the state’s milk production is located.
The facility would produce up to 88,000 tons of milk powder a year.
Industry observers greeted the deal as a milestone in this country’s interest in grabbing a bigger share of China’s surging demand for dairy products. Milk powder, without the weight and spoilage issues of fresh milk, is suitable for export.
“It’s kind of our growing up,” said Alan Levitt, vice president of communications for the U.S. Dairy Export Council. “To put up a plant geared to exports is very significant.”
The Kansas City cooperative, owned by 13,000 dairy farmers, disclosed little about the deal except to confirm the partnership with Inner Mongolia Yili Industrial Group and that it’s an outgrowth of a strategic partnership formed two years ago with the Chinese company.
Rick Smith, president and CEO of Dairy Farmers of America, said Yili, the leading Chinese dairy processor, was an impressive and fitting partner.
“Today, we have committed to an historic initiative to bring DFA and Yili even closer together,” he said in a statement.
The partnership calls for Dairy Farmers of America to contribute $70 million and the Chinese company $30 million to build the plant, according to the Wall Street Journal, which cited a filing at the Shanghai Stock Exchange.
In December, Dairy Farmers of America opened a milk-powder plant in Nevada. That facility, which doesn’t have a partner, has about half the capacity of the one proposed in Kansas. The Nevada facility has roughly 45 employees.
China has been dogged by quality problems with food. In 2006, tainted infant formula killed six babies. Inferior pork produced in the country was seen as one of the reasons it acquired Smithfield Foods in 2013.
But a growing population along with the money for a shifting appetite has China scrambling to supply enough milk.
“The story in China is demand,” said Pamela Ruegg, an associate professor of dairy science at the University of Wisconsin in Madison.
The university is creating a curriculum for a $400 million dairy training center in China that will include dairy farm management to help the country increase its milk production.
But Levitt of the Dairy Export Council said China will still have a long-term need for imports and it wants to diversify where those come from. It has relied on New Zealand for 60 percent of those imports but a drought last year caused problems. The U.S. has seen its exports to China rise but they have not been so much for milk as in a byproduct like whey.
The plant should also be a boost for Kansas dairy farmers who have 137,000 cows and provide $592 million to the state’s economy.
“Anything that helps demand is certainly going to help hold up prices,” said Robin Reid, extension associate for agriculture economics at Kansas State Unviersity.