Moo techniques

Huaxia: looks after its cows well

When Charles Shao decided to invest millions of dollars in 2004 to build a dairy farm in China, his family and friends were baffled. “Everyone thought we were fools,” he recalls.

Shao, who has a background in computer engineering, had moved to China in 2002 – after selling his company to Google. He and his friend Albert Tseng (a former textiles executive) both wanted to try something new. It was a toss-up between a vineyard and a dairy farm Most perhaps would have gone for the sexier course of bottling wine. “I chose the dairy farm,” Shao remembers. Two years later, the pair set up Huaxia Dairy Farm in Sanhe, about an hour’s drive from Beijing.

Why dairy? Shao says he regards agriculture as a much less-explored frontier in the Chinese economy. “If you try to set up a technology company here, there’s pretty much competition everywhere,” he told MSNBC in an interview.

Shao spent the next six months visiting dairy farms around the country.

He was not impressed by much of what he encountered. “Some cows slept in dung, a lot of them were sick and the milk was left outside,” he told Sanlian Life Weekly in an interview. “During that time I didn’t drink any milk, because almost 99% of the milk in China was handled the same way.” (Readers of WiC will be well aware of the various scandals to hit Chinese milkmakers since 2008.)

For Shao, this meant a greater emphasis on training and implementing management systems. In Huaxia, all animals are monitored for illness, and the milk produced is tested on a daily basis by the farm and on a weekly cycle by an independent lab.

The milk is then sent directly to processing plants for packaging, eliminating the need for a middleman. This single-stream system – from farm to fridge – aims to reinforce quality and safety standards.

“Even though we have US technologies, we’re still in China,” says Shao. “There are no specialist herdsmen and farm labour is unskilled. We instead have to compartmentalise and make our staff task-oriented. The concept of high quality assurance is new to them.”

The cows themselves also come in for more considered treatment at Huaxia. Apparently, they munch on protein-enriched alfalfa imported from the US. Also, wages for employees are better than average, to ensure that they will be “gentle” with the herd, Shao told Global Entrepreneur.

Huaxia currently has about 7,000 cows, putting it into the top 20 dairy farms in the country.

Annual milk output per cow is 12.5 tonnes – that’s 3 to 5 tonnes higher than most domestic producers. Fat content, protein content and other key indicators also suggest that Huaxia’s milk is well above national standards.

Huaxia now produces raw milk for Mengniu and Yili, two of the country’s largest dairy processers. It supplies fresh milk to Costa Coffee, an international coffee chain, and directly to the US and German embassies. And more recently, Huaxia has started selling its own brand Wonder Milk, which is about 25% more expensive than domestic competitors.

Shao’s focus has remained an expansive one, especially in pushing for changes to the way dairy farming is run in China. In the last two years, Huaxia has been working with the US Grains Council to offer a demonstration farm and training centre for local farmers. “The idea is actually to bring in US technology transfer so we can teach people in China how to do dairy farming correctly,” says Shao.

What’s next? In July, private equity firm Olympus Capital and Mueller Milch, one of the leading European producers of dairy products, announced an investment of $45 million for a minority stake in Huaxia. Shao told China Business he wants to use the proceeds for another new venture, this time moving upstream into animal feed.

“It is possible to change how dairy farming is done in China,” Shao declares. “We are a good example!”

In an industry with such a poor reputation, perhaps Huaxia can encourage others to adopt a similar approach?

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.