Rabobank supports structural change in Chinese dairy farming sector

Developing domestic dairy farming and dairy production is vital to the food supply in Asia and Africa. That’s why Rabobank in China signed a partnership with the Sino-Dutch Dairy Development Centre and a memorandum of understanding with dairy company China ZhongDi Dairy.

At 25 March 2015, during the Dutch trade mission to China, Wilco Hendriks, CEO of Rabobank China, signed the agreements, in the presence of the Dutch Prime Minister Mark Rutte.

Contribution to research projects

The Sino-Dutch Dairy Development Centre is dedicated to developing the productivity, safety and quality of the dairy chain in China. China Agricultural University, Wageningen University and dairy company FrieslandCampina laid the foundation for the centre at the end of 2013. Rabobank supports the development centre through sponsorship, training, contribution to research projects and field trips, for Dutch clients to China and vice versa. In their memorandum of understanding, Rabobank and China ZhongDi Dairy have identified several areas for cooperation including the development and funding of dairy farms and dairy processing plants, financing investments in dairy cattle and equipment through export financing solutions.

Stimulate mutual contacts

Rabobank already plays an active role with respect to Dutch companies’ dairy activities in China and also engages with Chinese companies operating in the Netherlands. ‘We provide our clients in both countries access to financial solutions, key knowledge and networks. We already established useful contacts between companies in both countries. The new partnerships will stimulate those mutual contacts and provide our Chinese clients access to Dutch knowledge and practices and give our Dutch clients new insights into the opportunities in China. In doing so, we strengthen the competitiveness of our customers and help to improve the food supply’, says Wilco Hendriks. Dairy is one of the key sectors in the Banking for Food activities of Rabobank globally.

‘The new partnerships will provide our Chinese clients access to Dutch knowledge and practices and give our Dutch clients new insights into the opportunities in China.’

Wilco Hendriks, CEO of Rabobank China

World’s fastest growing dairy market

‘China is one of the world's largest dairy markets with growth potential despite near term headwinds as a result of high dairy prices and economic slowdown’, explains Sandy Chen, analyst at Rabobank Food and Agribusiness Research. The almost 1.4 billion Chinese consume more than 45 billion litres of milk annually, of which approximately 75% is produced domestically. Rabobank Food and Agribusiness Research most recent analyses show that, while the demand for infant and toddler nutrition is levelling off, the quality demands are rising rapidly.

Constraints for domestic production

China faces challenges to become self-sufficient in its milk supply. China still has nearly 2 million businesses that keep dairy cattle, ranging from backyard farms with a few cows to corporate farms with well over 10,000 heads of dairy cattle. Sandy Chen: ‘The dairy farming sector goes through structural changes to become more organised. While China has been investing heavily in building large corporate farms in recent years, a number of constraints domestically, ranging from relatively high feed cost, a scarcity of land and water, to environmental protection needs and farm management capability, remain. This continues to provide room for growing imports in the coming years.’ Dairy farmers and dairy companies in major dairy exporting countries, such as the Netherlands, Australia, New Zealand and the United States, are focusing on supplying more products to meet that demand.

Supporting investment

China is just one of the Asian countries where Rabobank is helping to develop domestic milk production. Rabobank Foundation is, for example, working in Indonesia and Vietnam with dairy company FrieslandCampina to provide education and affordable financing for dairy farmers. The financing is used to buy cows, improve the barn infrastructure and build biogas plants. FrieslandCampina buys the milk. Interest and repayment instalments are withheld so dairy farmers pay off their debt gradually. Farmers are also trained to produce more and better milk. Dairy farmers that are clients of local Rabobanks in the Netherlands also visit dairy farmers in Asia in order to provide them with advice about improving business operations and quality. Since 2012, Rabo International Advisory Services (RIAS, a division of Rabo Development) has been supporting the largest dairy cooperative in Vietnam (Evergrowth, with 2,600 members a key supplier of FrieslandCampina) to improve its bankability. Hans Bogaard, head of Agribusiness at RIAS: ‘This has led to a marked improvement of dairy infrastructure and heifer quality over the last few years.’

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