KKR’s Asian Private Equity fund invested in Asia Dairy in 2008 as an innovative commercial solution addressing key health and safety concerns in Chinese domestic dairy production.
The Commercial Challenge:
The 2008 Chinese milk scandal in which milk was contaminated with melamine poisoned thousands of people across China and raised widespread concerns around food safety. Despite government pressure and regulatory changes, the Chinese public maintained a level of skepticism regarding the quality of dairy products, and demonstrated a willingness to pay a premium for safe products with a transparent supply chain.
- Identify critical global issues in need of commercial solutions: In 2008, KKR identified an opportunity to build an industry leading dairy farm that reliably provided high quality, safe supply of dairy products
- Back experienced partners to deliver innovative solutions: KKR and our local partners worked closely with leading experts on optimal site selection, project construction, and heifer purchases to implement best-in-class dairy practices, enhancing product quality and reliability
- Execute value creation thesis by addressing operational levers: KKR and our local partners applied industry-leading operational initiatives that focused on better nutrition, breeding and disease reduction of our cows. We improved milk productivity from 7 tons per cow to 9 tons per cow in 4 years (as of January 2014). We established an end-to-end process, maintained a strict disease and safety control system, and developed tools that saved 10% of costs per unit without sacrificing quality
- Manage critical ESG issues thoughtfully and innovatively: We identified animal waste as a key ESG issue we needed to address. We created an animal waste treatment facility to convert cow manure into organic fertilizer and biogas-fuel electricity generation. We sold any excess fertilizer to our neighboring farmers.
Financial and Impact Outcome:
Asia Dairy differentiates its product because of its focus on safety and quality in a market where this is a key challenge. Asia Dairy’s milk products, unlike those of the majority of domestic producers, exceed China’s National Food Safety Standard’s key quality ratios and comply with international standards for raw milk.