COMMENTARY

A cooling China doesn’t want your iron ore, it wants your milk instead

Obsession
Consumer Class
Obsession
Consumer Class
An elderly man sits in front of an advertisement of locally produced milk, that promises in ads in Chinese to "fortify the Chinese people"  Thursday, Nov. 13, 2003 in Shanghai, China. Following successful manned flight, China's space program hopes to spin gold from commercial endorsements; space milk and official watches among the offings. (AP Photo/Eugene Hoshiko)
An ad for locally produced milk promises to “fortify the Chinese people”. (AP Photo/Eugene Hoshiko)

What’s a sovereign-wealth fund to do? The China Investment Corporation (CIC), tasked with investing a portion of the country’s vast foreign-currency reserves, used to put more of its money into equities and financial firms—but in the crash of 2009, those went sour. It shifted to natural resources, and mineral-rich Australia became the fourth-biggest destination for Chinese foreign direct investment. But, as Australia’s own mining minister said last month, “The resources boom is over.”

So now the fund that at the end of last year had nearly half a trillion dollars (pdf, p. 41) of assets under management is putting some of them into another natural resource: milk.

The CIC’s need for new things to invest in coincides with China’s need for new sources of nutrition. Although milk considered an essential product worldwide, China is still developing a mass taste for it. Though the country has one of the world’s lowest per-capita milk consumption rates, that has grown by about 10% annually in recent years, as dairy seeps into globalizing city diets and processing and distribution techniques improve—notwithstanding fairly high rates of lactose intolerance. But supplies are still short in the wake of a deadly powdered-milk-poisoning scandal that eroded trust in the Chinese dairy industry and forced shutdowns and bottlenecks in 2008. Demand initially plunged after the scare, taking tens of thousands of cows out of production, but has since bounced back.

The government temporarily eased some tariffs on dairy to boost imports, most of which come from New Zealand and the US. But scouts from the CIC have recently toured dairy farms in mineral-rich Tasmania looking for partners. These farms are reportedly looking for capital to expand, and Tasmania’s premier has already been to Beijing to promote her state’s broader agricultural expansion, which includes a new irrigation program to make land more productive. If Chinese investment helps to boost dairy output, it might do the whole body good.

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