Mengniu increases stake in milk supplier

China Mengniu Dairy Company Limited is paying HK$3.18 billion (US$409 million) to increase its stake in raw milk provider Modern Dairy to 28 percen.

Mengniu will become Modern Dairy's single largest shareholder, and hopes this will give it more control of its milk supply amid increasing food safety concerns, the company said.

Anhui-based Modern Dairy is currently Mengniu's largest raw milk supplier with 22 dairy farms across China. Mengniu had 1 percent stake before the deal.

"Accelerating and expanding investments in quality farms will allow Mengniu to establish a safer and more stable value chain in the dairy sector, to provide healthier and better quality dairy products to consumers," a joint statement from the companies said.

Modern Dairy aims to have 30 farms by 2015, each with 10,000 to 40,000 cows.

Mengniu said in March that profit in 2012 fell 21 percent to 1.26 billion yuan due to food safety concerns and internal consolidation.

The price of raw milk also climbed in recent years due to rising feed costs and inflation.

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