Japfa to supply raw milk to China's second-largest dairy producer for five years

AGRI-FOOD company Japfa Ltd said on Friday its subsidiary, AustAsia Investment Holdings, has entered into a five-year milk supply agreement with Inner Mongolia Yili Industrial Group Co Ltd. Yili is China's second-largest dairy producer by revenue, Japfa said in a media statement.

Under the agreement, Japfa will supply 500 tonnes of raw milk per day to Yili from 2015 to 2019. The milk will be supplied from three of the group's farms in Dong Ying city, Shandong province. The value of the agreement was not disclosed.

This comes as the company expects lower average selling prices for its raw milk this year, compared to 2014, said Tan Yong Nang, CEO of Japfa, in the media release.

"Given the recent slowdown in dairy prices globally and in China, we expect the average selling prices of our raw milk to be lower in 2015 compared to 2014. The strategy of longer term contracts not only cements our relationship with top-tier customers but also insulates us from price volatility," said Mr Tan.

Japfa's raw milk also commands a higher average selling price than its competitors in China, because of the better quality, he said.

"We believe the lower selling prices are more sustainable in the long run and will still generate healthy margins. We remain positive on the growth prospects of our dairy business and will continue to invest in building capacity and improving productivity."