NEW YORK (AP) — Investment firms Kohlberg Kravis Roberts & Co. LP and China's CDH Investments said that they are forming a joint venture with Chinese dairy producer Modern Dairy to distribute raw milk throughout China.
The joint venture comes after several safety scares with milk in China. In 2008, domestic supplies killed six babies and sickened thousands. The country's demand for imported milk soared after that. But last month, New Zealand milk exporter Fonterra announced that hundreds of tons of infant formula could be tainted with bacteria that can cause botulism.
"The management of Modern Dairy saw a need arising from increasing demand for safer and healthier milk," said David Liu, the head of KKR in China, in a statement. "The solution was large-scale dairy farm that incorporated global best practices. Today, food safety remains a top priority and this new investment helps increase the supply of premium raw milk in China."
The three companies will invest $140 million over the next 18 months to build two new dairy farms in the country.
KKR and CDH first invested in Modern Dairy in 2008. Since then it has grown to have 22 farms with about 180,000 cows from three farms and 24,000 cows in 2008. Modern Dairy completed an initial public offering on the Hong Kong Stock Exchange in 2010.
The new joint venture plans to build two farms, with 10,000 cows each, in two years. The farms will be located in the Shanghe county of eastern China's Shandong province. KKR will have a 61.5 percent stake of the joint venture, CDH will hold 20.5 percent and Modern Dairy will have an 18 percent stake. As part of the agreement, Modern Dairy will be able to buy the joint venture farms in three years.
The deal is expected to close in the fourth quarter.
KKR is based in New York and will make its investment through its China Growth Fund. China's CDH Investments has offices in Hong Kong, Beijing, Shanghai, Singapore, Shenzhen and Jakarta. Modern Dairy is headquartered in China's eastern province of Anhui.