China Will Encourage Mergers to Boost Dairy Industry

China will encourage mergers in the dairy industry to create a few large companies that can produce high-quality products, the Ministry of Industry and Information Technology said in a statement on its Web site today.

The government “will accelerate the consolidation of the dairy industry and create advanced, cross-regional dairy companies with global competitiveness” the ministry said. “Inefficient companies using outdated technology will be forced out of the market and overcapacity in the industry will be reduced.”

China is trying to rebuild confidence in the country’s $19 billion dairy industry after a contaminated-milk scandal last year, which led to the deaths of at least six children and sickened at least 296,000. The crisis led the government to announce plans to overhaul dairy farming and processing in an industry where 69 percent of farmers have fewer than 20 cows.

The nation’s top three dairy companies by market value, Inner Mongolia Yili Industrial Group Co. (600887), Bright Dairy & Food Co., and China Mengniu Dairy Co., were among 22 companies found last year to have sold milk products containing the industrial chemical melamine, a compound used in making plastics which is banned in food.

The government will support large companies to issue bonds and shares to fund expansion and will encourage banks to make lending to the leading players a priority, the ministry said in its statement.

The government wants to raise the per capita consumption of dairy products and will encourage schoolchildren to boost consumption, the ministry said. The government is considering subsidizing milk for poor children, it added.

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