Food and beverage firm's Inner Mongolia unit may be transferred to Ningxia Saishang

Switzerland-based Nestle SA, the world's largest food and beverage company, is planning to sell one of its dairy factories in China to a third party, according to an industry insider, as part of the company's efforts to reduce its local output of raw milk powder.

The company plans to dispose its factory in Hulunbuir, the Inner Mongolia autonomous region. It is the 22nd factory set up by Nestle in China and its fourth dairy manufacturing sites in the country. The other three factories produce end dairy products for consumers. The Hulunbuir unit collects milk from local farmers and converts it to raw milk powder.

Nestle has been in several rounds of negotiation with Ningxia Saishang Dairy Co Ltd. The reported schedule is to transfer the factory to Saishang in the first quarter of 2018, according to an industry source who doesn't want to be named.

According to the public relations department of Nestle, "Dairy is an important component of Nestle's product offering and business operations in China. We remain fully committed to building a healthy and sustainable dairy business, with significant investments made in support of this ambition.

"Due to market changes, Nestle Hulunbuir Dairy Factory is seeking a solution to make our dairy business continuously sustainable. We are reviewing different options in consultation with relevant stakeholders. There are no specific details to share at this stage," said the statement.

Song Liang, an independent dairy expert in China, said rising manufacturing costs have pushed foreign invested food companies to transfer their manufacturing capacities overseas.

The move is a result of the international oversupply of raw milk, high inventories of domestic raw milk powder and subsequent profit erosion for raw milk powder manufacturers.

"Investment in the raw milk powder sector comes with some risks and companies need to be aware of them," Song said.

Nestle has added consumer healthcare as a new growth engine. Its subsidiary－Nestle Health Science's factory in Taizhou－will start manufacturing of special medical formula food for the Chinese market from next year.

The company has also prioritized high growth foods in the beverage sector including coffee, pet care, infant and toddler nutrition formula and bottled water.

According to Nestle, during the first nine months of this year it earned revenue of $66.5 billion, down 0.4 percent year-on-year. Its growth in China improved in the third quarter due to positive momentum in coffee and culinary product sales. Last year in China the double-digit decline of Yinlu－which manufactures processed and prepared foods and beverages－affected overall growth, Nestle said.