Photo: VCG

China's Mengniu Dairy on Monday reached an A$600 million ($407 million) deal to acquire a third Australian drinks brand. The company announced its newest purchase following the acquisitions of Australian dairy companies Burra foods and Bellamy's Organic. 

Analysts said the merger can bring the complementary advantages of the Chinese and Australian dairy sectors into full play. 

Mengniu signed a deal on Sunday to buy 100 percent of Lion - Dairy & Drinks, an Australian company specializing in dairy products and beverages, the company announced on Monday in a disclosure to Hong Kong Exchanges and Clearing.

The Chinese company acquired Bellamy's, an Australian organic infant milk powder and auxiliary food brand, in September. 

Through its merger with Lion, Mengniu will integrate Bellamy's, Burra and other Australian businesses to form a cluster worth about 10 billion yuan ($1.42 billion). It is expected to become the largest dairy enterprise in Australia, according to industry insiders.

Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, said that China and Australia are actually upstream and downstream on the dairy industrial chain.

"Australia is upstream, providing the means of production such as dairy products, wool and minerals, while China is downstream, with manufacturing and direct consumption. With the cooperation of the two sides, Australia has obtained a stable and huge market, and China has obtained a stable supply. China and Australia have formed a community of shared interests and reduced common risks," Bai said.

China has become the world's largest importer and net exporter of dairy products, dairy cattle and herbage to feed animal, and the world's largest dairy emerging market, according to a white paper on China's dairy industry released in July 2019.

In 2018, the import and export of dairy products, improved breed cattle and herbage totaled $11.02 billion, breaking down into $360 million for exports and $10.66 billion for imports, with a trade deficit of $10.3 billion, read the white paper.

"Australia has high-quality milk sources, large milk production facilities and a complete cold chain distribution system," Liu Jianying, an associate research fellow at the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce, told the Global Times on Monday.

"Australia's dairy industry chain is mature and its products diversified, whereas China's market is vast and its huge output every year is still unable to meet demand. Thus, the two countries are highly complementary in the dairy industry," said Liu.

Mengniu said the acquisition is an important step in its international strategy and another important layout in Australia after Bellamy's, according to a press release sent to the Global Times on Monday. 

"It will help Mengniu form a complete and competitive regional business, establish a more complete and efficient global supply chain and provide more high-quality brands and dairy products to consumers in China, Southeast Asia, Oceania and other regions," read the press release.

As of the end of 2018, 17 Chinese companies had invested in dairy products overseas, according to the Dairy Association of China.

"Big manufacturers like Mengniu, have to go global to reduce risks. Mengniu's acquisition of Australian dairy enterprises is a protection against risk," Bai noted.

This is not the first time that Lion has sold a business. Canadian dairy company Saputo completed the acquisition of Lion's specialty cheese business in October 2019, at the price of A$280 million.